Bank of Israel Surprises Markets with Second Rate Cut to 4%

The Bank of Israel unexpectedly cut its benchmark interest rate by 25 basis points to 4%, marking its second consecutive rate cut.

The Bank of Israel said the move was supported by easing inflationary pressures and improving supply conditions, despite most economists having expected rates to remain unchanged.

Cooling Inflation

Annual inflation stood at 2.4% in November, remaining within the government’s 1%–3% target range, giving the central bank room to adjust policy.

Labor Market and Supplies

While the labor market remains somewhat constrained, recent data shows gradual improvement in supply conditions following the ceasefire in Gaza in October 2025.

Analysts believe the decision by the Bank of Israel signals growing confidence in price stability and could pave the way for further monetary easing.