The Bank of Israel’s Monetary Committee cut its policy rate by 25 bp to 3.75 % on 25 May 2026, citing a sharp first-quarter GDP contraction of 3.3 % (annualised) due to Operation Roaring Lion, lingering labour-supply constraints and a recent pick-up in the global inflation environment, even as domestic 12-month CPI remains near the 1-3 % target midpoint at 1.9 %. After keeping the rate at 4 % in March, the central bank has now lowered it from 4.50 % a year ago through a series of 75 bp of cuts since November 2025. The shekel has appreciated by 8.3 % against the USD and 7.4 % on a nominal effective basis since the previous meeting, helping to temper price pressures, while Israel’s risk premium and government-bond spreads have retreated to pre-conflict levels. Credit-card spending has rebounded to slightly above trend, but the economy is still about 4.5 % below its long-term GDP path; broad unemployment fell to 5.9 % in April as reserve-duty absences eased. Housing-related CPI eased to 3.3 % year on year, and home prices are down 1.2 % on the year despite a 0.3 % rise in the latest two-month period. Globally, major central banks held rates steady amid elevated geopolitical risk, while energy-price swings have pushed up worldwide inflation expectations. The Committee reiterated that future policy moves will depend on inflation, economic activity, geopolitical risks and fiscal developments, warning that exchange-rate gains could offset but supply constraints, higher energy prices
Bank of Israel2026-05-25
Bank of Israel cuts policy rate by 25 bp to 3.75%
Bank of Israel cut its policy rate by 25 bp to 3.75 % on 25 May, resuming easing after a March pause as Q1 GDP fell 3.3 % annualised and CPI stayed near the 1–3 % target at 1.9 %. The move brings total cuts since November 2025 to 75 bp, with the Committee warning that supply constraints, energy costs and fiscal pressures could rekindle inflation and that future decisions will remain data-dependent.