The strong shekel, stable prices with inflation well below the annual target range upper limit of 3%, and the fall in the risk premium for Israel, all mean that the Bank of Israel Monetary Committee is seen by most analysts cutting the interest rate tomorrow by 0.25% to 3.5%.
This will be the second successive interest rate cut, after the Bank of Israel cut the rate by 0.25% at its most recent meeting in late May and its fourth rate cut since November 2025.
Leader Capital Markets chief economist Jonathan Katz says, "In our assessment, the Bank of Israel will cut the interest rate tomorrow, but is expected to emphasize that most macroeconomic factors still do not support continued monetary easing. These factors include a tight labor market, rapid wage growth, a major recovery in private consumption, a relatively expansionary fiscal policy and geopolitical risks that remain high."
He added, "On the other hand, an inflation environment around the target (and even below), the decline in inflation expectations and the sharp appreciation of the shekel are key considerations supporting the interest rate cut. The strong shekel is expected to continue to contribute to inflation but may also cloud the economy's growth potential. In addition, it is unclear to what extent the Bank of Israel will take into account the extraordinary impact of Nvidia on the macroeconomic data, with domestic activity actually weaker than reflected in the growth data."
He explained, "Of particular importance will be the research division's interest rate forecast for the second quarter of 2027. A forecast in the range of 3%-3.25% may be interpreted as relatively optimistic, while a forecast of 3.25% would send a more hawkish message. This is despite the fact that the governor previously stated that the real interest rate required in Israel is around 1.5%, and at the same time raised the possibility that in the AI era a lower real interest rate will be required."
Published by Globes, Israel business news - en.globes.co.il - on July 5, 2026.
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