Israel Cuts Interest Rate to 3.25% as Inflation Moderates
Israel’s central bank has reduced its benchmark interest rate to 3.25%, citing moderating inflation and the continued recovery of economic activity.
The Bank of Israel’s Monetary Committee announced the decision on September 1, 2026, as policymakers assessed inflation, economic growth, financial-market conditions and the country’s continuing geopolitical uncertainty.
Inflation Moves Lower
The central bank said inflation had moderated in recent months and was below the midpoint of Israel’s target range during the period reviewed.
Consumer prices were unchanged in June and increased by 0.3% in July. Annual inflation stood at 1.5% in July, according to the Bank of Israel.
The moderation in inflation provided room for policymakers to lower borrowing costs while continuing to monitor economic risks.
Economy Shows Strong Recovery
Israel’s economy recorded significant growth during the second quarter of 2026.
The Bank of Israel reported that GDP grew at an annual rate of 15.4% compared with the first quarter, while GDP was 6.2% higher than in the fourth quarter of 2025.
The central bank noted that part of the second-quarter expansion reflected a recovery from the economic impact experienced during the first quarter.
Geopolitical Risks Remain
Despite the improving economic indicators, uncertainty remains high because of geopolitical tensions.
The central bank said developments in the region could influence economic activity, energy prices, the exchange rate and inflation.
Energy markets have also been affected, with the Bank of Israel reporting a sharp rise in oil prices during the reviewed period.
Labour Market Remains Tight
Israel’s labour market continues to show relatively strong conditions.
The Bank of Israel reported that the employment and participation rates among people aged 25–64 remained high, while the broad unemployment rate for this age group was 3.2% in July.
Job vacancies also increased slightly during the month.
Wage Growth Continues
Wages have continued to rise across parts of the Israeli economy.
The central bank said nominal wages increased by 6.2% year-on-year during April–June, while wages in the business sector excluding high-tech rose by 5.4% during March–May.
The Bank of Israel is continuing to assess whether wage developments could influence future inflation.
Housing Market Shows Mixed Signals
The housing market remains an area of attention for policymakers.
The stock of unsold homes remained high, although transactions increased moderately during May and June, particularly for new homes.
Home prices increased slightly over May–June but were still 1.5% lower than a year earlier, according to the central bank.
Next Interest Rate Decision
The Bank of Israel said its future interest-rate decisions will depend on inflation, economic activity, geopolitical developments and fiscal conditions.
The next interest-rate decision is scheduled for October 21, 2026, following a change to the previously planned timetable.
