- Decision
- Lower
- Rate change
- 25 bps
- interest rate
- 4.25%
The Monetary Committee of the Bank of Israel cut its policy rate by 25 bp to 4.25 percent on 24 November 2025, arguing that annual inflation has slowed to 2.5 percent—within the target range—while third-quarter GDP surged 12.4 percent saar despite the level of activity still lagging its long-term trend amid persistent geopolitical and fiscal risks. After holding the rate steady at 4.50 percent at every meeting from January through September, this marks the first easing this year. Inflation expectations for one year ahead have fallen toward the range midpoint, and forecasters see only a temporary uptick before further moderation, even as the labour market stays tight with a high vacancy-to-unemployed ratio and business-sector wages up 5.2 percent y/y; residential property prices, meanwhile, declined for a seventh consecutive month. Externally, the shekel has appreciated 1.3 percent against the USD since the previous decision, and Israel’s CDS and government-bond spreads have narrowed to just above pre-war levels. The Committee noted moderate global growth, stabilising inflation abroad and a mixed policy backdrop in which the US Federal Reserve lowered its rate by 25 bp while the ECB remained on hold. It reaffirmed that the future interest-rate path will hinge on inflation, economic activity, geopolitical uncertainty and fiscal developments, without committing to a specific timing for further moves.
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.