Israel: Central Bank holds rates in February
Latest bank decision: At its meeting on 23 February, the Central Bank decided to keep its policy rate at 4.00%, following 50 basis points of cuts from October to January. This contrasted market expectations of a cut.
Bank in wait-and-see mode: The Bank decided to stay on hold to evaluate the impact of recent rate cuts. Though headline and core inflation have pulled back notably since the middle of 2025, the labor market is tight and economic activity is robust, which likely dissuaded further rate cuts. Elevated international uncertainty due to fluctuations in U.S. tariffs and possible U.S. military intervention in Iran was likely a further reason to stay on hold.
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:
“Our baseline assumes no economically meaningful geopolitical escalation and, on this basis, we expect the BoI to cut by 25bp in March and in May. The October 7 war’s primary impact on Israel’s economy has been a severe labour shortage, leaving GDP about 5% below its pre-war trend, and we expect the unwinding of this supply constraint to simultaneously enable a period of above-potential growth and further disinflation.”