Bank of Israel keeps rate at 4%, policy statement turns slightly more hawkish

ISRAEL - In Brief 23 Feb 2026 by Sani Ziv

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The Bank of Israel kept its benchmark interest rate unchanged at 4.0% on February 23. As we wrote yesterday, the decision came as no surprise to us. The Bank outlined the main considerations behind its decision not to lower the policy rate. First, the latest economic data did not justify a third consecutive rate cut. The economy expanded at an annualized rate of 4% in the fourth quarter of 2025, following a sharp rebound of nearly 13% in the previous quarter. Wage growth remains elevated, the labor market is tight, and both rental and housing prices continue to rise. Considering these indicators, the Committee prefers to wait and monitor developments more closely. Policymakers also emphasized that the geopolitical environment has become more uncertain, with renewed war-related risks with Iran. In addition, they noted that monetary policy operates with lags and that excessive easing could fuel renewed demand pressures later in the year, forcing a policy reversal.Israel’s policy rate vs. leading central banksSource: Bank of Israel; Federal Reserve; European Central Bank; Bank of Japan.Policy Statement: Wording and Tone Analysis When we compare the phrasing of the current rate decision to the one published on January 5th, we find that the latest announcement adopts a more hawkish tone and wording. The prior statement signaled growing confidence in the disinflation process, noting that “inflation continues to moderate” and that “inflation expectations are anchored within the target range”. It also emphasized that labor supply constraints were easing somewhat and that the inflation environment had declined. The overall message was one of stabilization and falling inflation....