Full Breakdown
Bank of Israel Holds Benchmark Rate at 3.25% Amid Election and Geopolitical Uncertainty
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Rate Decision
The Bank of Israel announced on Wednesday that it left its short-term benchmark interest rate unchanged at 3.25%, the lowest level since 2022. The move follows three consecutive cuts earlier in the year and aligns with the expectations of all 15 economists polled by Reuters, who had forecast a pause.
Context and Recent Monetary Moves
The central bank cited “high uncertainty” stemming from ongoing geopolitical tensions, while noting that the country’s risk premium remained broadly stable. Inflation was reported at 1.6% annualized, comfortably within the 1%-3% target range and below the midpoint, a moderation the bank attributed in part to a strong shekel against the dollar. Policymakers also observed that economic activity appeared to have slowed at the start of the third quarter after expanding at an annualized 15.4% rate in the second quarter.
Economic Indicators and Forecasts
In its statement, the Bank of Israel emphasized a continued focus on price stability and on supporting economic activity. The bank’s research department projected gross domestic product growth of 5.6% for 2026 and 7.5% for 2027, reflecting expected contributions from Israeli firms operating abroad. The decision was made ahead of a national general election scheduled for next week, adding a political dimension to the monetary outlook.
Implications
By holding rates steady, the central bank maintains low borrowing costs for households and businesses while preserving policy flexibility for future adjustments should inflationary pressures or geopolitical risks evolve. The stable risk premium and modest inflation suggest limited immediate pressure to tighten, but the combination of an upcoming election and regional tensions keeps the outlook uncertain, prompting the bank to monitor developments closely.