BoI holds rates at 4% with a hawkish tone; growth forecasts downgraded; 2026 budget passes with unrealistic assumptions

ISRAEL - In Brief 30 Mar 2026 by Sani Ziv

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Bank of Israel leaves the policy rate at 4%, with a somewhat hawkish statement The Bank of Israel left the policy rate unchanged at 4.0%, in line with expectations, but we felt that the wording of the statement was clearly hawkish. The bank emphasized, as expected, the increase in geopolitical uncertainty, particularly regarding the duration and intensity of the fighting. It also highlighted the rise in the inflation environment due to higher global energy prices. However, it did not describe this increase as temporary (as other central banks tend to do) and instead referred to oil futures contracts pointing to around $84 per barrel toward the end of 2026. In its discussion of inflation expectations, the Bank of Israel notes the increase in forecasters’ expectations (by 0.5 percentage points), without referring to the still relatively low level of forecasters’ expectations even now (around 2.2%). In its statement, the Bank of Israel emphasized the range of risks stemming from the geopolitical situation and the risk of further deterioration in Israel’s security environment. At the same time, even under a more optimistic scenario, it highlighted pent-up demand as a source of potential inflationary pressures. The chart below shows that the policy rate remained at 4.5% through most of 2024-2025, reflecting a prolonged period of monetary tightening and caution, before declining to around 4.0%. Graph 1Bank of Israel policy rate, %Source: Bank of IsraelFrom an activity perspective, the bank notes that recent data do not justify additional rate cuts at this stage. GDP grew at an annual rate of around 4% in the fourth quarter of 2025, following a sharp recovery in the previous ...