The Bank of Israel Monetary Committee, headed by Governor Prof. Amir Yaron, has kept the interest rate at 3.25%, after three successive rate cuts in its three most recent meetings in September, July and May. Economists had expected that the rate would remain unchanged.
The Bank of Israel noted that annual inflation has fallen to 1.6% in September, slightly below the midpoint of the target range. The Bank of Israel added, "Uncertainty remains high in view of the geopolitical tensions. However, during the reviewed period, Israel’s risk premium remained at levels similar to those prior to October 7, 2023, and the shekel depreciated."
Alongside the interest rate decision, the Bank’s Research Department released its revised macroeconomic forecasts. The Bank projects strong growth of 5.6% in 2026 and 7.5% in 2027. However, it notes that these figures are skewed upward due to production abroad by Israeli companies. The bank's previous growth forecast was 3.8% for 2026 and 5.5% for 2027.
GDP, reflecting only domestic activity, is expected to grow by 3.4% in 2026 and 5.1% in 2027. Inflation is projected to creep upward to 1.5% by the end of 2026 and to 2.1% in 2027. At the same time, the Bank of Israel has issued a stern fiscal warning to the government: the high level of uncertainty on the defense budget poses a significant risk. According to the Bank’s assessment, increasing the defense budget without corresponding budgetary adjustments would lead to a rise in the deficit and could reignite inflation.
The Bank of Israel Research Department predicts one more rate cut of 0.25% over the next year.
Published by Globes, Israel business news - en.globes.co.il - on October 21, 2026.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2026.