Bank of Israel Governor Warns Inflation Will Rise, Next Government Faces Tough Economic Challenge

Professor Amir Yaron, Governor of the Bank of Israel, told Bloomberg Television on August 18, 2026, that inflation in Israel is expected to increase in the coming months, reaching around 2%, the midpoint of the government's inflation target. He did not commit to lowering interest rates at the upcoming September meeting, noting that the decision will depend on real-time economic data. Currently, the Bank of Israel's interest rate stands at 3.5% after two consecutive cuts, with a previous forecast suggesting it could drop to 3% within a year. However, Yaron highlighted increased uncertainty since the last rate decision, citing labor market conditions, inflation trends, geopolitical risks, and fiscal challenges as factors the monetary committee must consider.

Yaron praised Israel's economic resilience, pointing to strong growth in the second quarter despite ongoing war and uncertainty. He emphasized that this robust performance might justify further monetary easing, but the central bank remains cautious. Looking ahead, Yaron warned that the next Israeli government, to be formed after the October elections, will face a "difficult challenge" in balancing the reduction of public debt with continued defense spending and investment in growth drivers. He described managing these three priorities simultaneously as a complex task.

The interview underscores the Bank of Israel's cautious stance amid evolving economic conditions and geopolitical tensions, signaling that monetary policy will remain data-dependent. The government’s fiscal strategy will be critical in maintaining economic stability while addressing security and development needs.