FX.co ★ Bank of Israel Cuts Benchmark Rate to 4%

In January, the Bank of Israel reduced its benchmark interest rate by 25 basis points to 4%, marking the second consecutive cut across successive meetings. As of November 2025, headline inflation cooled to a four-year low of 2.4%, remaining within the government's target range of 1% to 3% for the fourth consecutive month, with expectations largely centered around the midpoint of this range. Economic activities continue to show robust growth, bolstered by credit card expenditures, exports, and strong fundraising in the high-tech sector. The risk premium hovers near levels observed before recent military conflicts. The labor market appears less constrained, with increased participation and employment rates, coupled with a reduction in reserve-duty-related absenteeism. The shekel has experienced a notable appreciation against both the US dollar and the euro, enhancing the nominal effective exchange rate. The Research Department anticipates GDP growth to reach 5.2% in 2026 and 4.3% in 2027, with inflation predicted to decrease to 1.7% and 2% for the respective years. Policymakers have highlighted potential risks stemming from geopolitical uncertainties, possible price pressures due to rising demand, and fiscal policy developments.