Full coverage· Economy· Updated 21 Oct, 20:52

Israel's Central Bank Holds Rates, Urges Fiscal Prudence for Next Government

The Bank of Israel's Monetary Committee, led by Governor Amir Yaron, decided on Wednesday, October 21, 2026, to maintain its benchmark interest rate at 3.25%, halting a streak of three consecutive cuts. This decision leaves the prime lending rate unchanged at 4.75%, meaning variable-rate mortgage and loan holders will see no immediate relief in their monthly payments.

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Israel's Central Bank Holds Rates, Urges Fiscal Prudence for Next Government — Illustration by baba

What happened

01The Bank of Israel kept its benchmark interest rate at 3.25% on Wednesday, pausing a cycle of three consecutive cuts.
02The decision keeps the prime lending rate at 4.75%, offering no immediate relief for variable-rate mortgage and loan holders.
03Annual inflation in Israel dropped to 1.6% in September, falling within the central bank's target range of 1% to 3%.
04The central bank cited a 3.1% depreciation of the shekel against the US dollar and geopolitical uncertainties as key factors.
05The interest rate decision was made six days before the Knesset elections scheduled for October 27.
06The Bank of Israel raised its 2026 GDP growth forecast to 5.6%, though domestic growth excluding offshore production is estimated at 3.4%.
07Housing prices in Israel decreased by 1.8% over the 12 months leading up to the decision.
08Dov Amitai of the Presidency of the Business Sector criticized the decision as a missed opportunity that burdens businesses and families.

While annual inflation fell to 1.6% in September, which is within the central bank's 1% to 3% target range, several economic and geopolitical factors prompted the pause. The committee cited a 3.1% depreciation of the shekel against the US dollar, rising US bond yields, global energy price risks, and high defense spending. The timing of the decision, coming just six days before the Knesset elections scheduled for October 27, also influenced the move to avoid perceptions of political motivation.

The central bank significantly raised its economic growth forecasts, projecting GDP growth of 5.6% for 2026 and 7.5% for 2027. However, the bank noted that much of this growth is driven by the offshore production of Israeli companies; excluding this, domestic growth is projected at 3.4% in 2026 and 5.1% in 2027. Additionally, housing prices fell by 1.8% over the past 12 months, while labor shortages continue to impact the market.

Governor Yaron warned the incoming government about the critical need to balance defense spending with fiscal discipline, urging growth-enhancing reforms and increased labor participation among Haredi and Arab populations. Business leaders, including Dov Amitai, Chairman of the Presidency of the Business Sector, criticized the decision as a missed opportunity that continues to burden families and hinder business investments.

Summarized by baba from the reports of 14 newsrooms. Updated 00:47