Bank of Israel Cuts Interest Rate to 3.5%, Easing Mortgage Payments and Economic Pressure

The Bank of Israel's Monetary Committee decided to reduce the interest rate by 0.25 percentage points to 3.5%, marking the second consecutive cut and the third since the start of 2026. Earlier this year, the rate stood at 4.25%. This decision follows a stabilization of inflation in Israel at an annual rate of 1.9% over the past two months, which is within the Bank's target range of 1% to 3%. Inflation expectations have also declined below 2%, providing the Bank with room to ease monetary policy.

The Bank of Israel noted that the stable inflation environment allows for some monetary easing, which could help address the challenges posed by the strong shekel. A strong currency has been hurting exporters' profitability, particularly in the high-tech sector, and weighing on overall economic activity. The Bank emphasized that its monetary policy focuses on price stability, supporting economic activity, and market stability, with future interest rate decisions depending on inflation trends, economic performance, geopolitical uncertainties, and fiscal developments.

For mortgage holders, the rate cut translates into modest monthly savings. For example, borrowers with a 100,000 shekel mortgage on a prime rate track over 20 to 30 years will save about 15 shekels per month. Those with 500,000 shekels will save approximately 75 shekels monthly, and those with a 1 million shekel mortgage will save around 150 shekels. Additionally, construction companies and contractors who take large loans for land acquisition and project financing will benefit from lower borrowing costs, potentially influencing housing prices.