The Bank of Israel left the interest rate unchanged

The decision was made against the background of the approval of the state budget for 2026, growing concern about the protracted nature of the war, and a sharp jump in energy prices.

The main factor that did not allow the rate to be reduced after two previous cuts (in November 2025 and January 2026) was fears of a new outbreak of inflation. According to the central bank, it could rise from the current 2% to the upper limit of the target range of 3%. Additional factors are geopolitical uncertainty and the education system that has been shut down for a month now, putting pressure on the labor market.

Simultaneously with the decision on the rate, the Bank of Israel published an updated economic forecast, which naturally turned out to be worse than in January. The growth forecast for the current year has been reduced from 5.2% to 3.8%. The forecast for 2027, on the contrary, has been increased – from 4.3% to 5.5%, which reflects expectations of a rapid recovery after the end of hostilities

The budget deficit is expected to be 5.3% of GDP versus the previous forecast of 3.9%. The debt-to-GDP ratio is forecast to rise to an expected 70.5% in 2026.

In addition, the Bank of Israel predicts one or two cuts in the policy rate by the end of 2026.