Bank of Israel Cuts Interest Rates, Raises 2026 Growth Forecast to 4%

As Israel continues to navigate a multi-front conflict involving the Palestinian militant group Hamas, as well as Iran and its proxy forces, the Bank of Israel has raised its economic growth forecast and lowered interest rates.

On July 6 (local time), the Bank of Israel cut its benchmark interest rate by 0.25 percentage points, from 3.75% to 3.5%.

This marks the third interest rate cut this year, following previous reductions in January and May.

In a statement, the central bank explained the background for the rate cut, noting, "The memorandum of understanding (MOU) signed between the United States and Iran has led to a decline in energy prices and a easing of global geopolitical tensions." The bank added, "While uncertainty remains at a high level, economic activity continues to show a moderate recovery."

The central bank also raised its economic growth forecast for this year to 4%, up from the 3.8% projection announced in March.

The growth forecast for next year was maintained at 5.5%, similar to the projection made in March.

The Israeli economy grew by only 2.9% throughout 2025, weighed down by the ongoing armed conflict with Hamas and the repercussions of a multi-front war with Iran-backed proxy forces.

Amir Yaron, Governor of the Bank of Israel, stated, "Since the previous interest rate decision, there have been notable changes in the geopolitical situation that have affected domestic and international markets." He added, "As long as inflation expectations continue to decline, this will justify a faster and more accommodative monetary policy."

He further projected, "Inflation will be significantly influenced by the ripple effects that factors such as geopolitical developments have on economic activity, energy prices, risk premiums, and exchange rates."

Governor Yaron also warned, "The sharp appreciation of the shekel poses a significant challenge to the export and high-tech sectors, which are key drivers of the Israeli economy." He added, "If the government sharply increases defense spending, the fiscal deficit will exceed its target, and inflation will also be higher than expected."

(Photo: Getty Images)
※ Please note: This article was translated by AI and may contain errors.