- Decision
- Maintain
- Rate change
- 0 bps
- interest rate
- 4.5%
Bank of Israel’s Monetary Committee kept the policy rate at 4.50 % on 7 July 2025, judging that although inflation has eased to 3.1 % over the past 12 months it still exceeds the 1–3 % target band, while economic growth remains moderate and subject to “high domestic and global uncertainty.” The rate has been unchanged at 4.50 % in every decision since at least January, including the April and May meetings. First-quarter GDP expanded by 3.7 %—near the long-term trend—yet output remains about 4 % below potential, and the labour market is still tight with a high vacancies-to-unemployed ratio; Israel’s 5-year CDS and hard-currency bond spreads have narrowed markedly but stay above pre-war levels. The shekel has strengthened sharply since the previous decision, gaining 7.3 % against the USD and 6.1 % on a trade-weighted basis, while the current-account surplus widened in Q1. Globally, activity is subdued but improving, and oil prices have been volatile, ending the period up roughly 5.5 % at USD 68 per barrel amid easing geopolitical tensions. The Committee reiterated that future moves will depend on inflation’s return to target, financial-market stability, economic activity and fiscal policy in an environment of ongoing geopolitical risk.
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.