Finance Minister Criticizes Bank of Israel's Minimal Interest Rate Cut Amid Economic Challenges

Israeli Finance Minister Bezalel Smotrich sharply criticized the Bank of Israel's recent decision to reduce the interest rate by only 0.25%, from 3.75% to 3.5%. Smotrich argued that this minimal cut does not meet the needs of the economy or address the challenges faced by households and businesses. He stated, "We at the Ministry of Finance see the economic movements and our position relative to the global economy, and therefore I urged the Bank of Israel to sharply reduce the interest rate." He added that the small reduction is insufficient for the needs of the economy and complicates conditions for the high-tech and export sectors. Smotrich believes a sharper cut would help ease the cost of living and balance the strengthening shekel.

Despite the criticism, the rate cut will directly affect hundreds of thousands of households with mortgages. According to the Association of Mortgage Advisors, lowering the prime rate from 5.25% to 5% will save an average borrower about 66 shekels per month on a 450,000-shekel mortgage over 25 years, amounting to nearly 20,000 shekels in total savings. This is the second consecutive rate cut and the third since early 2026, following the Bank of Israel's easing of monetary policy amid stabilizing inflation.

The Bank of Israel attributes the ability to lower rates to inflation being near the government's target range of 1%-3%. Recent price index data show price stability, giving Governor Professor Amir Yaron room to continue monetary easing. Meanwhile, business sectors, particularly high-tech and exporters, have also called for a more substantial rate cut, citing the strong shekel's negative impact on profitability.

The Bank of Israel emphasized its cautious approach, preferring measured rate reductions over dramatic moves. Its monetary committee focuses on price stability, supporting economic activity, and market stability, with decisions based on inflation trends, economic activity, geopolitical uncertainties, and fiscal developments. The rate cut also offers some relief to construction companies and contractors financing land purchases and projects, though not to the extent requested by the Finance Minister.