Bank of Israel Maintains Interest Rate at 4% - Cites Geopolitical Risks and Housing Prices

The Bank of Israel left its benchmark interest rate unchanged at 4% on Monday, halting a cycle of two consecutive quarter-point cuts that began in November.

The decision came despite recent data showing moderating inflation. The January Consumer Price Index fell by 0.3%, and annual inflation declined to 1.8% — its lowest level since June 2021. Some economists at banks and investment houses had not ruled out another rate reduction in light of the softer inflation figures.

However, the central bank opted to pause further easing.

Three Key Concerns

According to officials, three primary factors weighed against a third consecutive rate cut:

• Rising geopolitical uncertainty, particularly amid renewed tensions and the possibility of conflict with Iran.

• Strong domestic demand alongside supply constraints, as well as fiscal developments that could reignite inflationary pressures.

• Renewed increases in housing prices during the final months of 2025.

The Bank of Israel signaled that these risks justify maintaining a cautious monetary stance, even as inflation currently sits within the target range.

Calls for Further Cuts

The decision drew criticism from some quarters, with calls for the central bank to continue lowering borrowing costs to stimulate growth.

“This is the time to embark on growth and give a significant boost to economic activity. There is currently no inflationary danger that justifies a restrictive monetary policy at this level,” one critic said, urging the governor to reverse course and resume rate reductions.

The debate now centers on whether easing inflation will allow for renewed monetary accommodation in the coming months — or whether geopolitical and domestic risks will continue to anchor rates at their current level.