Key facts
- Bank of Israel held benchmark interest rate at 3.25%.
- Annual inflation rose to 1.6% in September.
- Inflation remains within the 1% to 3% target range.
The Bank of Israel left its benchmark interest rate unchanged at 3.25% on Wednesday, opting for a pause after three successive cuts. The decision was widely expected by economists, who cited the upcoming general election on October 27 and potential impacts on Israeli policy toward Iran as reasons for the central bank's caution. The annual inflation rate edged up to 1.6% in September, remaining within the bank's 1% to 3% target range. The bank had previously cut rates in November and January, paused due to the conflict with Iran and inflation fears, and then resumed cuts in May, July, and September. Current indicators of economic activity show continued growth following the rapid second quarter recovery from Operation Roaring Lion. The Research Department’s Staff Forecast expects GDP to grow by 5.6 percent in 2026 and by 7.5 percent in 2027, largely reflecting expected contributions from production abroad by Israeli firms. The forecast for GDP growth excluding production abroad is 3.4 percent in 2026 and 5.1 percent in 2027. The labor market remains tight with significant supply constraints.