Bank of Israel Governor Prof. Amir Yaron was encouraged by the Consumer Price Index (CPI) for September, describing it as a "development in the right direction." The Governor was speaking today at the "Tomorrow's Banking" conference organized by the Supervisor of Banks, ahead of the interest rate decision to be announced on November 24.
Market expectations that the Bank of Israel will cut the rate are high and Yaron chose his words carefully. "Regarding the policy path forward, as I have previously stated, we are interested in seeing a consistent process of inflation convergence towards the target," he said. The September CPI was lower than expected (-0.6% when -0.3% was predicted), and a step in the right direction, he said.
Two directions of influence on inflation
The Bank of Israel’s annual inflation target is between 1% and 3%. The latest CPI brought it into the target range with an annual inflation rate of 2.5%. The Bank of Israel interest rate is currently 4.5%, and has not changed for almost two years, while interest rate cuts have already begun in the US in recent months, and in Europe.
Looking ahead Yaron says, "In assessing the economic forces that will operate in the coming months, two main directions of influence on inflation can be identified. On the one hand, the appreciation of the shekel, and the expected decrease in the volume of reserve mobilization, and with it the easing of restrictions on economic activity - both work to reduce inflationary pressures. On the other hand, the improvement in the geopolitical situation may lead to an increase in demand, which may exert upward pressure on prices. The path of inflation in the near future will be the result of the balance between these forces."
Prior to the interest rate decision, the October CPI will be published along with national accounting data (economic growth) for the third quarter. This data he says, "Will provide us with a clearer picture of the balance between demand and supply, and will enable us to make an informed and data-based decision."
Yaron also spoke about the formulation of the state budget, which is currently being prepared. Although 2026 will be an election year, due to the shocks of the war that necessitated an increase in the budget, he stressed the need to reduce the deficit target to 3% of GDP in 2026. This is because it was the responsible budgetary policy that the government led during the war, he said, that maintained the markets' confidence in the Israeli economy.
He began his remarks by praising the Israeli economy during the war. "If you look at things in a broad perspective and take into account the traumatic event that the nation experienced on October 7, and after two consecutive years of intense fighting on several different fronts, the Israeli economy, and in fact Israeli society, have shown and are showing impressive resilience. This should not be taken for granted."
Yaron added that he had also received similar feedback from discussions he has had with international officials. In those talks with "economists and managers of financial institutions and investment houses, I repeatedly encounter surprise and astonishment at the ability of the Israeli economy to display extraordinary resilience over the past two years. This assessment from the international community reflects the economic resilience we have built over time and the responsible policy that has been maintained even during particularly challenging periods. This is reflected, among other things, in the financial markets - in the decline in the risk premium and the significant increases in the stock market."
Prof. Yaron continued that although the second quarter data this year were relatively weak, "In the third quarter, and even more so in the last few weeks since the ceasefire, the economic indicators point to a nice recovery, with the first signs of renewed growth. At the same time, it is important to remember that the security situation is still fragile, and even if the improvement trend continues, the economy faces challenges, including continued high levels of reserve duty, and ongoing supply constraints in the job market. Accordingly, growth forecasts for next year range widely, reflecting the uncertainty in which we operate."
Published by Globes, Israel business news - en.globes.co.il - on November 4, 2025.
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