Full Breakdown
Bank of Israel Holds Rate at 3.25% as Governor Warns of Fiscal Risks
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Core Decision and Economic Context
The Bank of Israel’s Monetary Committee kept the benchmark interest rate unchanged at 3.25% per annum. The hold aligns with market forecasts and follows three consecutive rate cuts. Inflation has been moderating, with the latest consumer-price index reading at 0.5% month-on-month, while annual inflation continues to decline. The central bank emphasized that the decision was made independently of any political calendar.
Governor Amir Yaron’s Fiscal Warning
Governor Prof. Amir Yaron cautioned the incoming coalition that “uncertainty regarding the defense budget poses a significant risk.” He argued that a growing defense budget without compensating fiscal adjustments would expand the deficit and fuel inflation. He said achieving macro-economic goals will require a mix of spending cuts and expanding the tax base through higher employment, while ruling out any political pressure on the rate decision.
Business Community Reaction
Business leaders described the rate pause as out of step with current realities. Roee Cohen, President of Lahav (The Israel Chamber of Independent Organizations and Businesses), said the policy conveyed “hesitation and a zero-risk approach” that does not match economic conditions. Dubi Amitai, Chairman of the Presidium of the Israeli Business Sector, called the decision a missed chance to relieve pressure on households and firms. Moshe Yidgar, CEO of Captain Credit, added that unchanged rates keep credit costs high for many borrowers, especially mortgage holders.
Projected Outlook
The Bank of Israel Research Department’s updated macro-economic outlook projects the benchmark rate to fall to 3.0% within a year. Under that scenario, GDP growth is expected to reach 5.6% in 2026 (including offshore production) and accelerate to 7.5% in 2027. Inflation is projected to moderate to 2.1%, and the budget deficit is forecast to narrow to 4.6% of GDP in 2027.
Verbatim Quotes
- “Uncertainty regarding the defense budget poses a significant risk,” — Prof. Yaron, of israel governor
- “The importance of maintaining fiscal resilience has become clearer, as proven during the COVID-19 crisis and the war in 2023,” — Prof. Yaron, of israel governor
- “Rising global yields require maintaining low debt-to-GDP ratios. Many governors around the world would like to be in our position. However, the central challenge of economic policy includes reducing debt-to-GDP, funding the public debt, and investing in infrastructure.” — The Governor
- “The decision is a missed opportunity to ease the burden on businesses and households and to give a boost to economic growth.” — Moshe Yidgar, CEO of Captain Credit