The Bank of Israel Monetary Committee, headed by Governor Prof. Amir Yaron, has cut the interest rate 0.25% to 3.75%, as most economists had expected, due to falling inflation, the strength of the shekel and Israel’s strong macroeconomic data. The Bank of Israel kept the rate unchanged at its last two meetings due to war concerns but had made two consecutive cuts of 0.25% at each of its meetings in November and January.

Despite the cut the Bank of Israel warned that "Geopolitical uncertainty remains significant, both domestically and globally," and that while, "Inflation in Israel remains around the midpoint of the target range (1%-3%), since the previous interest rate decision, there has been a sharp increase in the global inflation environment.

"In the Committee’s assessment, there are risks of a renewed acceleration of inflation - including geopolitical developments and their impact on economic activity and on energy prices, an increase in demand alongside supply constraints, and fiscal developments - while the shekel’s appreciation may work to moderate inflation.

The Bank of Israel noted the sharp appreciation of the shekel in recent weeks. "Since the previous interest rate decision, the shekel appreciated by 8.3% against the US dollar, by 7.2% against the euro, and by 7.4% in terms of the nominal effective exchange rate."

The Bank of Israel added, "National Accounts data for the first quarter of 2026 reflect the impact of the military Operation Roaring Lion (against Iran) on economic activity. In the first quarter, GDP contracted by an annual rate of 3.3%. This contraction was more moderate than previous forecasts and than during Operation Rising Lion in June 2025.

"Current indicators of economic activity point to recovery following Operation Roaring Lion. After a decline during the military operation, credit card purchase data in current prices recovered and are slightly above the long-term trend line."

Published by Globes, Israel business news - en.globes.co.il - on May 25, 2026.

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