Israel: Central Bank cuts rates in January
Latest bank decision: At its meeting on 2 January, the Central Bank decided to cut its policy rate from 4.25% to 4.00%, marking the second cut in succession and contrasting market expectations for rates to stay on hold.
Inflation pullback drives decision: Headline and core inflation have pulled back notably since the middle of 2025, with both now sitting within the Bank of Israel’s 1.0–3.0% target range; this likely provided the space for continued monetary easing. Falling house prices and real estate transactions plus the strengthening of the shekel since the prior meeting in November likely further motivated the Bank’s decision.
More monetary easing expected: The Central Bank provided no explicit forward guidance on the future direction of interest rates. All of our panelists expect at least one more rate cut before the end of 2026.
Panelist insight: On the outlook, Goldman Sachs’ analysts said:
“In light of the surprise to our forecast, we maintain our expectation for an additional 25bp cut later this quarter and additional 25bp cuts in Q2 and Q3, bringing the policy rate to our +3.25% estimate of neutral (albeit one quarter earlier than we had originally projected).”