Further interest rate cuts: Bank of Israel responds to improving inflation conditions

ResearchChadButBroke · 2026-01-12T11:01:26+00:00

The Israeli central bank has reduced the key interest rate by 0.25% for the second consecutive time, responding to easing inflationary pressures. The current rate is 4.00%, with projections suggesting further reductions to 3.5% by year-end, reflecting cautious monetary policy amid stabilizing geopolitical conditions.

ResearchChadButBroke

2026-01-12 11:01:26

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Central Bank Monetary Policy in the Path of Rate Cuts

Israel’s financial institution decided on Monday to reduce the main base rate by 0.25 percentage points. This is already the second such action in recent months — the previous one took place in November, marking a breakthrough after nearly two years of no changes in interest rates. This move aligns with observed market trends, where inflationary pressure is clearly weakening.

Current Rate Status and Projections for the Coming Periods

The central bank’s main reference rate is currently 4.00%, while its previous level was 4.25%. The institution’s governor, Amir Yaron, pointed out that despite two reductions already implemented, monetary authorities will proceed with great caution. At the same time, the monetary policy committee is formulating forecasts indicating the possibility of further interest rate decreases to 3.5% before the end of the year.

What Determines the Changes?

The decision to lower interest rates is a response to changing economic conditions — especially against the backdrop of stabilized geopolitical situations in the Middle East. The prospect of reducing inflationary pressure and strengthening the national currency has created suitable conditions for changes in the interest rate structure. The bank’s projected two additional cuts of 25 basis points each indicate a consistent monetary policy course, although they will be carried out with particular attention to economic and price indicators.

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