Weekly Report - October 19, 2026: Election polls point to a dead heat between the two blocs; inflation surprises to the downside; BoI expected to hold rates

ISRAEL - Report 19 Oct 2026 by Sani Ziv

With Israel's October 27 election just eight days away, polls continue to point to a political deadlock, with neither bloc securing a majority. Opposition parties are preparing to advance legislation through the Knesset after the vote, hoping to attract another party to a new coalition or trigger fresh elections. President Trump has openly endorsed Netanyahu, although we do not expect his intervention to materially change the electoral balance.

September's CPI surprised to the downside, declining by 0.5% m/m, while annual inflation remained low at 1.6%. We have revised our year-end inflation forecast to 1.9%, mainly reflecting higher oil prices and the expected reversal of the temporary fuel-tax cut. Despite the favorable inflation outlook, we expect the Bank of Israel to keep rates unchanged at 3.25% on October 21 and through year-end.

Economic indicators continue to point to strong Q3 growth, supported by expanding exports and imports. The IMF has raised its 2026 growth forecast for Israel to 4.5%, following the incorporation of NVIDIA's overseas production into Israel's GDP estimates. The fiscal deficit remains contained at 3.2% of GDP, although additional defense spending is exerting increasing pressure on civilian budgets. According to our analysis, Nvidia's expanding operations in Israel could significantly boost tax revenues, with annual tax payments potentially reaching USD 4.5-5.5bn.

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