The Bank of Israel cut its policy rate by 25 basis points to 3.25% at its September 2026 meeting, defying market expectations for an unchanged rate. This move marked a third consecutive reduction and brought the policy rate to its lowest level since 2022.
Policymakers noted that inflation has continued to moderate and currently stands below the midpoint of the 1%–3% target range. At the same time, economic activity expanded at a strong pace in the first half of the year, although growth appears more moderate when excluding production carried out abroad.
The committee emphasized that uncertainty remains elevated amid ongoing geopolitical tensions, even though the risk premium has stayed close to previous levels. Labor market conditions are still tight, despite a slight increase in the broad unemployment rate.
Looking ahead, policymakers expect inflation to remain close to the midpoint of the target range.
