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

The Bank of Israel announced on Monday a 0.25% reduction in the base interest rate, lowering it to 3.5%, with the prime rate falling to 5%. This marks the second consecutive rate cut and the third since the start of 2026. The Monetary Committee chose to continue monetary easing without waiting for the next scheduled decision on August 31. The decision was largely influenced by the current inflation rate of 1.9% annually, which is near the Bank's target range of 1% to 3%. The Bank emphasized that its policy focuses on price stability, supporting economic activity, and market stability, with future rate paths dependent on inflation trends, economic performance, geopolitical uncertainties, and fiscal developments.

This rate cut will directly affect mortgage holders, particularly those with loans tied to the prime rate. According to the Mortgage Advisors Association, each 0.25% rate reduction decreases monthly payments by approximately 15 shekels per 100,000 shekels borrowed on prime rate mortgages over 20 to 30 years. For example, borrowers with a 500,000 shekel prime mortgage can expect to save about 75 shekels monthly, while those with a 1 million shekel loan will save around 150 shekels per month.