The BOI Monetary Committee decides to leave the interest rate unchanged

The Israeli economy continues to function in an environment of high geopolitical uncertainty in view of the intensification of the fighting in Gaza and the worsening international sentiment toward Israel. Economic activity recovered following the military operation against Iran.  Annual inflation declined slightly, and is in the upper portion of the target range. During the reviewed period, Israel’s risk premium remained stable at a level that is higher than it was before the Swords of Iron War.

In view of the geopolitical uncertainty, the interest rate path will be determined in accordance with the convergence of inflation to its target range, stability in the financial markets, economic activity, and fiscal policy.

Report highlights:

•  In view of the intensification of the fighting in Gaza and a deterioration in international sentiment toward Israel, uncertainty in the geopolitical environment is high.
• Inflation in the past 12 months declined slightly, to 2.9 percent, which is in the upper part of the target range. In the coming months, inflation is expected to remain around the upper bound of the target range, and even to cross it, and will begin to moderate in early 2026.
• Economic activity recovered after the contraction due to the military operation against Iran.
• The labor market remains tight, mainly due to labor supply constraints resulting from the mobilization of reserve soldiers and the shortage of non-Israeli workers.
• The volume of activity in the construction industry remains significant, and the numbers of building starts and building permits continue to increase and remain high in annual terms. The downward trend in the number of housing transactions continues, and the annual pace of increase in home prices moderated.
• According to the Research Department staff forecast’s assessment, under the assumption that the fighting in Gaza continues at varying intensity and ends during the first quarter of 2026, GDP is expected to grow by 2.5 percent in 2025 and by 4.7 percent in 2026, and the inflation rate is expected to be 3 percent in 2025 and 2.2 percent in 2026.
• Since the previous interest rate decision, the shekel has appreciated by 1 percent against the US dollar, by 0.8 percent against the euro, and by 1.2 percent in terms of the nominal effective exchange rate.