- Decision
- Maintain
- Rate change
- 0 bps
- interest rate
- 4%
The Bank of Israel’s Monetary Committee kept its policy rate at 4.00 percent on 30 March 2026, judging the current stance adequate as the inflation environment has firmed on the back of a sharp rise in global energy prices and persistent geopolitical uncertainty linked to Operation “Roaring Lion.” After cutting the rate by a cumulative 50 bp since November 2025, when it stood at 4.50 percent, policymakers now see headline CPI edging up to 2.0 percent year on year in February—within the 1–3 percent target range—while core inflation is 2.2 percent and forecasters have lifted near-term projections by about 0.5 ppt. The Research Department, assuming the conflict ends by late April, trimmed its 2026 GDP growth forecast to 3.8 percent (from 5.2 percent) but raised 2027 growth to 5.5 percent; it also foresees a budget deficit of 5.3 percent of GDP this year and public debt near 70.5 percent of GDP. The labour market remains tight, with business-sector wages up 4.7 percent y/y in November–January. Externally, the shekel slipped 0.8 percent against the USD but gained 0.5 percent on a nominal effective basis, while Israel’s risk premium nudged higher. Brent crude has surged about 60 percent to USD 113 per barrel and European gas prices are up 70 percent, underscoring the global inflation impulse. The committee reiterated that the future rate path will depend on inflation trends, economic activity, geopolitical developments and fiscal outcomes, noting that risks to price stability are tilted upward.
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.