Bank of Israel Governor Professor Amir Yaron announced a reduction in the interest rate by 0.25% from 4.25% to 4%. The discount rate was reduced for the second time in a row.
The Bank of Israel expects two more rate cuts during 2026, bringing the rate to 3.5% in the final quarter of the year.
According to the head of the Bank of Israel, inflation has decreased since the last decision on the discount rate. Analysts expect it to fall to the target range in the first quarter of 2026. The shekel strengthened 3.1% against the dollar and 1.5% against the euro. The situation on the labor market has improved, in particular due to a decrease in the number of days missed by workers due to conscription into reservist service, as well as due to a decrease in the growth rate of wages in the business sector. There is a high level of activity in the construction industry. The risk premium for Israel remains at levels close to pre-war.
About a month and a half ago, the Bank of Israel announced the first reduction in the interest rate in almost two years – from 4.5% to 4.25%. At the same time, in an interview, Professor Amir Yaron said that in the near future we should not expect zero interest rates, which existed before the coronavirus epidemic.