Third consecutive cut: Bank of Israel lowers interest rates to 3.25%, following economic review

The Bank of Israel lowered its interest rate to 3.25% on Tuesday, extending a year of monetary easing as inflation remained moderate and economic growth accelerated.

The 0.25 percentage-point reduction marked the third consecutive cut in the past 12 months. The Monetary Committee said its policy would continue to focus on price stability, support for economic activity and market stability. “The interest rate path will be determined according to developments in inflation, economic activity, geopolitical uncertainty, and fiscal developments,” the bank said.

Consumer prices were unchanged in June and rose 0.3% in July. Inflation over the preceding 12 months reached 1.5% in July, below the midpoint of the Bank of Israel’s target range. Forecasters and most one-year expectations indicated that inflation should remain near the midpoint in the coming months.

The shekel showed little overall change against major currencies after the previous rate decision in July. It gained 0.6% against the dollar, lost 1% against the euro and declined 0.1% on an effective nominal basis. The committee said geopolitical developments, energy prices, the risk premium, exchange rates, demand, supply constraints and fiscal policy would continue to affect inflation.

National accounts data showed second-quarter GDP growth of 15.4% at an annual rate compared with the first quarter, and 6.2% growth compared with the fourth quarter of 2025. Revisions to earlier data narrowed the gap with the economy’s long-term growth trend to about 0.8%. The bank said the quarter’s growth reflected expansion across all GDP components and partly represented recovery from first-quarter damage linked to the start of Operation Roaring Lion, when Israel carried out intense airstrikes on Tehran on February 28. Excluding Israeli companies’ activity abroad, second-quarter GDP was 3.8% above the fourth quarter of 2025.

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The interest rate path will be determined according to developments in inflation, economic activity, geopolitical uncertainty, and fiscal developments.