The Bank of Israel announced Tuesday that it is lowering its benchmark interest rate by a quarter percentage point to 3.25%, delivering its third consecutive rate cut and its fourth reduction since the beginning of 2026. The decision came as a surprise, running contrary to most forecasts ahead of the announcement.
The latest move will also bring Israel’s prime rate down to 4.75%. The central bank previously cut rates by a quarter point in both May and July.
A major factor behind Tuesday’s decision was the continued decline in inflation. Israel’s annual inflation rate currently stands at just 1.5% — its lowest level since May 2021 — giving the Bank of Israel additional room to lower borrowing costs. The government’s inflation target range is between 1% and 3%.
The strength of the shekel also played a role. A stronger Israeli currency reduces the cost of imported goods, including raw materials, consumer products and energy, helping restrain price increases. At the same time, the strong shekel creates difficulties for exporters and Israeli industry, which could receive some relief from lower interest rates.
The decision was nevertheless considered relatively surprising because of rising government spending and continued security uncertainty. It also comes as gasoline prices jumped Tuesday to a record 8.25 shekels per liter for 95-octane fuel, a development expected to push the Consumer Price Index higher in the coming months.
Tuesday’s decision continues a series of rate reductions by the Bank of Israel as policymakers weigh falling inflation and the strong shekel against concerns that government spending, security developments and rising fuel costs could again put upward pressure on prices.
(YWN World Headquarters – NYC)
