Israel’s central bank cut its key interest rate for the third consecutive meeting on Tuesday, defying a global tightening cycle as most major economies raise borrowing costs to combat inflation. The Bank of Israel reduced its benchmark rate by 25 basis points to 3.25%, the lowest level since late 2022.
The decision follows two prior reductions in November and January, which were paused after the escalation of tensions with Iran before a resumption of easing in May and July. The central bank cited weakening price pressures and the strength of the shekel as key factors in its move. Inflation stood at 1.5% in July, comfortably within the central bank’s target range of 1% to 3%.
While Israel’s gross domestic product expanded at an annualized 15.4% in the second quarter, stripping out production by domestic firms abroad reduced growth to 3.8% compared with the fourth quarter of 2025. The central bank emphasized that future policy adjustments would depend on inflation trends, economic activity, geopolitical risks, and fiscal policy. It previously projected a rate floor near 3% by mid-2027.
The move contrasts with tightening cycles underway in other major economies. The European Central Bank is widely expected to raise rates again at its next policy meeting next week, following its June hike. The Bank of Israel’s latest decision underscores its focus on price stability, economic support, and market stability amid elevated regional uncertainty.
