Bank of Israel rate decision - high likelihood of a cut today

ISRAEL - In Brief 24 Nov 2025 by Sani Ziv

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The Bank of Israel is widely expected to cut rates today for the first time since January 2024, bringing the policy rate from 4.50% to 4.25%. Market pricing implies a 70%-75% probability of a rate cut at today’s meeting. The key driver is the decline in inflation: Headline CPI stands at 2.5% y/y for the second consecutive month and is expected to fall to around 1.9%-2.0% in January 2026 as the high “VAT-adjusted” January 2025 reading drops out of the annual calculation. Inflation expectations also point toward a 2.0% rate over the next 12 months, well within the midpoint of the target range. The shekel’s sharp appreciation, nearly 10% since the beginning of the year, is suppressing imported inflation, while fiscal data remain broadly favorable, with the deficit projected to fall below 5% of GDP this year. Another factor supporting a rate cut is the decline in Israel’s risk premium, despite continuing geopolitical tensions, including last night’s killing of Hezbollah’s Chief of Staff. At the same time, the global environment is supportive of easing: The Federal Reserve cut rates in both September and October and markets assign a 50% probability to another rate cut in December. If the Bank of Israel allows interest-rate differentials to widen, could further strengthen the shekel. Why not cut rates?The labor market remains tight: Unemployment stood at 3.0% in October, and wage growth re-accelerated to 4.7% in September after moderating earlier in the year. Domestic activity has also shown resilience. GDP surged at a 12.4% annualized pace in Q3, with private consumption already back to its pre-war trend. The central bank remains concerned about the potential for pent-up de...