Bank of Israel Cuts Interest Rate by Quarter Percent Amid Easing Inflation

The Monetary Committee of the Bank of Israel announced a quarter-percentage-point reduction in the benchmark interest rate, a move expected to provide some relief to mortgage holders and borrowers. This decision follows a recent slowdown in price increases, with inflation falling below the government's target range.

The rate cut translates to a monthly saving of approximately 65 shekels for mortgage payments and around 20,000 shekels over the life of a mortgage. The Association of Mortgage Consultants welcomed the move, viewing it as a potential boost to the housing market, which has seen moderate activity in recent months.

Despite economic recovery, with the economy growing 6.2% compared to the end of 2025 (or 3.8% excluding overseas operations), significant uncertainty persists due to the security situation. However, Israel's international risk indicators and the shekel's exchange rate have remained stable. Demand for labor is high, and business sector wages (excluding high-tech) rose 5.4% in the spring. The unemployment rate is at 3.2%, similar to pre-operation levels, and available job openings have slightly increased.

In the housing market, the number of available homes remains stable, with slight increases in real estate transactions in May and June, particularly for new apartments. While annual apartment prices have seen a 1.5% decrease, new mortgage borrowing was around 10 billion shekels in July. Rent increases have also moderated, especially for apartments with changing tenants.

Bank of Israel emphasized that its interest rate policy aims to maintain price stability, support business activity, and ensure financial system stability. Future decisions will depend on inflation, economic conditions, security developments, and the government budget. Global energy prices have surged due to Middle East tensions, but global economic activity continues to grow, with inflation rates varying across major economies.