The Bank of Israel Monetary Committee, headed by Governor Prof. Amir Yaron, has announced that it has kept the interest rate unchanged at 4.5%. This is the twelfth consecutive time that the Bank of Israel has left the interest rate unchanged, after cutting it from 4.75% in January 2024. Some analysts had predicted a rate cut due to the decline in Israel’s risk premium, the sharp appreciation of the shekel, and falling inflation.
But in its decision the Bank of Israel noted that although inflation in the past 12 months has declined to 3.1%, it is above the 3% upper bound of the target range. The Bank of Israel also mentioned that while Israel’s risk premium, as measured by the 5-year CDS price and by the spreads on dollar-denominated government bonds, has declined significantly, it remains higher than in the prewar period.
The Bank of Israel added, “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.”
The Bank of Israel research department also cut the GDP growth forecast for 2025 from 3.5% to 3.3%. The Bank of Israel had previously cut the growth forecast from 4% to 3.5% in April. The Bank of Israel sees 4.6% GDP growth in 2026. The forecast for inflation in 2025 remains unchanged at 2.6%.
The Bank of Israel has revised the fiscal deficit forecast upwards by 0.7% to 4.9% in 2025 and upwards by 1.3% to 4.2% in 2026. The Bank of Israel sees the debt to GDP ratio at about 70% at the end of 2025, and about 71% in 2026.
The Bank of Israel sees the interest rate falling to 3.75% by the second quarter of 2026.
Published by Globes, Israel business news – en.globes.co.il – on July 7, 2025.
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