The Bank of Israel left its benchmark interest rate unchanged at 4% in February 2026, following two consecutive cuts. While inflation has eased and the shekel has strengthened, the central bank warned of risks that inflation could pick up again.
Geopolitical uncertainty has intensified in recent days, particularly amid concerns over a possible US strike on Iran, which could weigh on economic activity. Additional inflationary pressures could arise from robust domestic demand, persistent supply constraints, and fiscal policy developments.
For now, inflation remains within the central bank’s target range, slowing to 1.8% in January—its lowest level since June 2021 and close to the midpoint of the target. The shekel has posted a modest appreciation against both the US dollar and the euro.
At the same time, economic activity continues to expand, with the latest quarterly growth rate accelerating to 4.4%. The labor market also remains tight.
