- Decision
- Maintain
- Rate change
- 0 bps
- interest rate
- 4%
On 23 February 2026 the Bank of Israel Monetary Committee kept the policy rate at 4.00 %, arguing that annual inflation has eased to 1.8 %—around the midpoint of the 1–3 % target range—while output and employment remain robust but geopolitical risks linked to a potential confrontation with Iran have risen. The decision follows a cumulative 50 bp rate reduction since November 2025. Fourth-quarter 2025 GDP grew by an annualised 4 %, above trend, and the labour market stayed tight with a high vacancies-to-unemployed ratio as supply constraints persisted; rents in new and renewed contracts accelerated to 3.8 % and home prices have started to rise again. Since the previous meeting the shekel has appreciated 1.1 % against the USD and 0.4 % versus the euro, while Israel’s CDS and hard-currency sovereign spreads widened slightly. Globally, economic activity and trade continue to expand and inflation is moderating, though Brent crude prices have risen roughly 16 % amid US–Iran tensions, and major central banks have held rates steady. The Committee reaffirmed that the policy path will hinge on inflation dynamics, economic performance, geopolitical developments and fiscal conditions.
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.