- Decision
- Maintain
- Rate change
- 0 bps
- interest rate
- 4.5%
The Bank of Israel’s Monetary Committee kept its policy rate at 4.50 % on 7 April 2025, judging that while 12-month inflation has eased to 3.4 % it remains above the 1–3 % target band and that economic activity is only “moderately” recovering amid elevated geopolitical uncertainty and a sharply higher risk premium. After three consecutive unchanged decisions since January, the policy rate has been steady at 4.50 % through 2025. The Committee noted no changes to its operating framework and reiterated its focus on market stability and uncertainty reduction during wartime. Inflation is expected to continue moving into the target range in coming months, supported by easing supply constraints, even as risks persist from geopolitical factors, prolonged bottlenecks, deteriorating terms of trade and shekel volatility. GDP is now projected to expand by 3.5 % in 2025 and 4.0 % in 2026, both lower than January’s forecast, with the labour market still tight—broad unemployment among 25–64-year-olds is seen averaging 2.9 % next year. Since the previous decision the shekel has fallen 4.3 % against the USD and 5.8 % on a nominal effective basis, while five-year CDS and dollar bond spreads have widened sharply. The US government’s newly announced tariff regime has triggered market sell-offs, downward revisions to global growth and world trade, and higher US inflation expectations; Brent crude has dropped about 12 % to USD 65 per barrel. The Committee stressed that future moves will hinge on inflation’s convergence to target, financial-market stability, economic activity and fiscal policy.
Rate evolution
From July 2025 to September 2026, the Bank of Israel reduced the interest rate by 125 basis points to 3.25 percent, after holding at 4.5 percent through September, cutting twice as disinflation became more established, pausing at 4.0 percent amid renewed conflict, and then resuming easing. The early holds reflected inflation still above or near the top of the target range, high inflation volatility, a tight labor market, and only moderate recovery in activity, all against high geopolitical uncertainty, with the Committee repeatedly citing risks from geopolitical developments, demand rising alongside supply constraints, worsening global terms of trade, and later fiscal developments. As inflation moved into the target range, expectations stayed around the midpoint, the shekel appreciated, and Israel’s risk premium declined, the Committee cut in November and January even as it noted a sharp rebound in activity, persistent labor tightness, and firm wage growth.
In the subsequent decisions, the Committee held in February and March as uncertainty around Iran resurfaced, energy prices lifted the inflation environment, and housing and labor supply pressures remained evident, then cut in May and July as inflation stayed around the midpoint, risk premia returned near prewar levels, and activity recovered after Operation Roaring Lion. The July decision also reflected lower energy prices and more moderate global geopolitical tension following the memorandum of understanding signed between the United States and Iran, even as the shekel had depreciated with high volatility, the labor market remained tight, wage growth was rapid, and housing inflation picked up. On September 1, the Committee cut by a further 25 basis points as inflation moderated below the midpoint, while noting that growth partly reflected recovery from Operation Roaring Lion, activity excluding production abroad by Israeli firms was more moderate, the labor market remained tight, and geopolitical uncertainty remained high, and reiterated that future moves would depend on inflation, economic activity, geopolitical uncertainty, and fiscal developments.