The Monetary Committee decides on May 25, 2026 to lower the interest to 3.75 percent.

 

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• Geopolitical uncertainty remains significant, both domestically and globally.
• Inflation in Israel remains around the midpoint of the target range, but since the previous interest rate decision, there has been a sharp increase in the global inflation environment.
• Since the previous interest rate decision, the shekel appreciated by 8.3 percent against the US dollar, by 7.2 percent against the euro, and by 7.4 percent in terms of the nominal effective exchange rate.
• National Accounts data for the first quarter of 2026 reflect the impact of the military Operation Roaring Lion on economic activity. In the first quarter, GDP contracted by an annual rate of 3.3 percent. This contraction was more moderate than previous forecasts and than during Operation Rising Lion in June 2025.
• Current indicators of economic activity point to recovery following Operation Roaring Lion. After a decline during the military operation, credit card purchase data in current prices recovered and are slightly above the long-term trend line.
• The labor market was greatly impacted by Operation Roaring Lion, and the labor supply constraint remains significant. The rate of temporary absentees due to military reserve service increased sharply in March, and declined slightly in April to 1.2 percent.
• Home prices increased by 0.3 percent in February–March, but declined by 1.2 percent in annual terms. The housing component in the Consumer Price Index moderated during the reviewed period, to an annual rate of 3.3 percent in the April Index.

 

The Monetary Committee’s policy is focusing on price stability, support for economic activity, and stability of the markets.  The interest rate path will be determined in accordance with the development of inflation, economic activity, geopolitical uncertainty, and fiscal developments.

 

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There is still significant geopolitical uncertainty, both domestically and globally.  Operation Roaring Lion had an impact on real economic activity, and the most recent data show a recovery.  Inflation in Israel remains around the midpoint of the target, but since the previous interest rate decision, there has been a sharp increase in the global inflation environment.  During the reviewed period, the shekel strengthened relative to the US dollar, and particularly relative to the global trend.

The Consumer Price Index increased by 0.4 percent in March and by 1.2 percent in April. Inflation in the past 12 months was 1.9 percent (Figure 1).  Net of energy and fruit and vegetables, the annual inflation rate in April was 1.5 percent (Figure 2). The annual inflation rate of nontradable components remained steady at 2.8 percent in March and April, and the annual pace of inflation of the tradable components increased to 0.3 percent, mainly due to the increase in global energy prices (Figure 3). According to forecasters’ assessments, inflation is expected to increase slightly, and to remain around the midpoint of the target range in the coming months (Figure 5). Inflation expectations for one year forward from the various sources are around the midpoint of the target range (Figure 6).  Expectations for the second year onward remain near the midpoint of the target range (Figure 7).  

Since the previous interest rate decision, the shekel has appreciated by 8.3 percent against the US dollar, by 7.2 percent against the euro, and by 7.4 percent in terms of the nominal effective exchange rate.

In the Committee’s assessment, there are risks of a renewed acceleration of inflation— including geopolitical developments and their impact on economic activity and on energy prices, an increase in demand alongside supply constraints, and fiscal developments—while the shekel’s appreciation may work to moderate inflation.

National Accounts data for the first quarter of 2026 reflect the impact of Operation Roaring Lion on economic activity.  In the first quarter of the year, GDP contracted by an annual rate of 3.3 percent, and business output contracted by 3.1 percent (in annual terms, seasonally adjusted) (Table 1).  These contractions were more moderate than previous forecasts and than during Operation “Rising Lion” in June 2025.  In view of the decline in growth in the first quarter, the level of GDP is about 4.5 percent lower than its long-term trend would indicate (Figure 11).  The contraction of GDP was led by a decline of 4.7 percent in private consumption, and a decline of 5.7 percent in public consumption (excluding defense import).  Alongside these, civilian imports (excluding ships, aircraft, and diamonds) increased by 33.1 percent, and exports (excluding diamonds and startups) increased by 5.6 percent (Table 1).

Current indicators of economic activity point to a recovery following Operation Roaring Lion.  After a decline during the military operation, credit card purchase data in current prices recovered and are slightly above the long-term trend line (Figure 13).  The aggregate balance in the Central Bureau of Statistics Business Tendency Survey declined sharply in March due to Operation Roaring Lion, and increased slightly in April (Figure 12).  Capital raised by the high-tech sector thus far in the second quarter declined relative to previous quarters (Figure 14).

Foreign trade data for March–April indicate stability in exports despite Operation Roaring Lion. In contrast, goods imports declined in March and recovered in April.  The increase in imports in April was led by raw materials, consumption goods, and investments (Figure 22).

The cumulative deficit in the government budget in the past 12 months (May 2025–April 2026) declined to 3.8 percent of GDP, mainly due to a low level of government expenditures in view of the interim budget during the first quarter of the year. Government receipts from direct taxation in April (in fixed prices and net of legislative changes and one-off revenues) remain above the long-term trend (Figure 15).  There is uncertainty regarding the increase in the defense budget, and with it the increase in the deficit target.

The labor market was greatly impacted by Operation Roaring Lion, and the labor supply constraint remains significant. The rate of temporary absentees due to military reserve service increased sharply in March, and declined slightly in April to 1.2 percent (Figure 17b).  The broad unemployment rate among those aged 15+ declined sharply from 15.9 percent in March to 5.9 percent in April, despite the fact that the fighting continued into April (Figure 17a). In April, the employment rate among those aged 15+ was 60.2 percent and the participation rate among those ages was 62 percent (Figure 16).  Following a marked decline in March, the job vacancy rate increased slightly, to 4 percent in April (Figure 18).  Prior to Operation Roaring Lion, the pace of wage increases in the business sector remained stable and high, at about 4.6 percent in January–February relative to the same period last year (Figure 19).  The pace of wage increases in the economy in March was 5.9 percent, but this figure was influenced by changes in the composition of employees due to Operation Roaring Lion.

Home prices increased by 0.3 percent in February–March, but declined by 1.2 percent in annual terms (Figure 8). In April, mortgage borrowing totaled about NIS 9.5 billion in seasonally adjusted terms (Figure 9). According to Central Bureau of Statistics data, the stock of new homes for sale remained high in March, at about 85,000 units.   The housing component in the Consumer Price Index moderated during the reviewed period, to an annual rate of 3.3 percent in the April Index.  The annual rate of increase in the owner-occupied housing services component (rent in new and renewing contracts) was 2.9 percent in the April Index.  The annual rate of increase in contracts in which there was a change of tenant declined to 3.6 percent in April.

Israel equity indices continued to increase during the reviewed period (Figure 29). After increasing at the start of Operation Roaring Lion, Israel’s risk premium, as measured by the CDS spread and by the spreads on dollar-denominated and shekel-denominated government bonds vis-à-vis US Treasuries declined to near its level from before October 7, 2023 (Figures 30a-b).  Business credit continued to expand rapidly during the reviewed period, led by credit from banks. Consumer credit to households from all sources also continued to expand.  The rate of debts in arrears in all activity segments remained low. According to the Central Bureau of Statistics Business Tendency Survey, credit constraints, both bank and nonbank, increased slightly in all types of businesses and in most industries (Figure 28).

Globally, despite the high level of geopolitical uncertainty, the damage to supply chains, and the increase in commodity prices, growth remained positive in most of the major blocs. During the reviewed period, the price of Brent oil declined by about 8 percent, and the price of natural gas in Europe declined by about 11 percent (Figure 32).

The global Purchasing Managers Index for April continued to increase, and remained at a level indicating continued expansion of global GDP for the ninth consecutive month (Figure 34).  The International Monetary Fund (IMF) revised its global growth forecast downward and its global inflation forecast upward.  The main effect on the forecast came from the shock in the energy market and the high level of uncertainty.

In the US, GDP grew by an annual rate of 2 percent in the first quarter, significantly higher than the previous quarter.  Employment reports for March and April were stronger than forecast, with the addition of 115,000 jobs in April and an unemployment rate that remained at 4.3 percent.  In the eurozone, first quarter data indicate a slowdown in in the growth rate, as GDP increased by just 0.1 percent in quarterly terms—lower than the market’s expectations. In China, GDP grew by 5 percent in the first quarter in annual terms.

Annual inflation in the United States accelerated in April. The CPI was 3.8 percent in April, and Core CPI was 2.8 percent. In the eurozone, annual inflation accelerated, to 3 percent in April, while core inflation was 2.2 percent.

During the reviewed period, the major central banks left the interest rates unchanged (Figure 36).  Since the confrontation with Iran, the interest rate path of many central banks as priced into the markets increased significantly (Figure 37).

 

The minutes of the monetary discussions prior to this interest rate decision will be published on June 8, 2026. The next decision regarding the interest rate will be published on Monday, July 6, 2026.