- Decision
- Lower
- Rate change
- 25 bps
- interest rate
- 3.5%
The Bank of Israel’s Monetary Committee lowered the interest rate to 3.5% on July 6, 2026, citing inflation that remained around the midpoint of the target range, continued recovery in activity after the March-April confrontation with Iran, and still-high geopolitical uncertainty despite lower energy prices following the United States-Iran memorandum of understanding. The Committee said policy remains focused on price stability, support for economic activity, and market stability, with the rate path to depend on inflation, activity, geopolitical uncertainty, and fiscal developments. May consumer prices fell 0.3% on the month, leaving annual inflation at 1.9%, while the Research Department projects GDP growth of 4% in 2026 and 5.5% in 2027; the labor market remained tight, with wages up 6.8% in March-May from a year earlier. The shekel depreciated during the review period with high volatility, and the central bank said Israel’s risk premium was near its pre-October 2023 level. Globally, the statement pointed to a sharp drop in oil prices and easing geopolitical tensions, though uncertainty remains high. The next interest rate decision will be published on September 1, 2026.
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.