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Bank of Israel Makes Surprise Rate Cut as Inflation Moderates and Shekel Gains
The Bank of Israel building is seen in Jerusalem, June 16, 2020. Photo: REUTERS/Ronen Zvulun
The Bank of Israel unexpectedly cut its interest rate by 25 basis points on Monday, a second successive cut after lowering it in November for the first time in nearly two years, citing an improving inflation environment after the Gaza ceasefire.
The benchmark short-term rate was reduced to 4.00% from 4.25%.
Bank of Israel Governor Amir Yaron said that despite the two cuts in a row, policymakers would remain cautious and mindful of economic and inflation developments and that the monetary committee’s base scenario was for the key rate to slip to 3.5% this year – two more 25 bps reductions.
He told a news conference that three factors contributed to the decision to lower rates again – easing inflation, a shekel that has reached a four-year peak versus the dollar and declining supply constraints.
SIGNS OF FEWER LABOR MARKET CONSTRAINTS
“Since the ceasefire [with terrorist group Hamas], there has been a change in the inflation environment,” Yaron said.
Supply constraints had stoked inflation during the two-year war in Gaza that ended with a US-brokered ceasefire in October 2025 but the annual inflation rate eased to 2.4% in November, within the government’s 1%-3% target range.
“While the labor market is tight, there are signs of moderation in supply constraints in the labor market,” Yaron said.
He also pointed to declining inflation expectations in the bond market and the stronger shekel, in which the currency’s appreciation supports lower inflation levels.
“These three factors together contributed to the decision to [cut] now rather than a bit later,” Yaron said, also noting that Israel‘s risk premium has moved back to near its pre-war level.
The bank‘s forecasters projected that there would be an increase in inflation when December’s data is released by the statistics office on Jan. 15, and it would then decline to around the midpoint of the policy target range.
NEXT DECISION DUE FEB. 23
Despite easing price pressures and a four-year high for the shekel against the dollar, nine of the 10 economists polled by Reuters had forecast the central bank would hold rates this month. One economist expected a quarter-point reduction.
The next decision is slated for Feb. 23, after both the December and January inflation figures are published.
The shekel was up 0.8% against the dollar at a 3.157 rate, its strongest since December 2021. Tel Aviv share indexes rose as much as 1.6%.
In updated forecasts, the central bank projected economic growth of 5.2% for this year after a 2.8% pace in 2025 that was held back by the war, and an inflation rate of 1.7% in the coming year.
Yaron also urged lawmakers to approve the 2026 budget. While it has received cabinet approval, it was not yet clear whether it will pass parliament due to political infighting. Failure to pass the budget by the end of March would trigger a new election.
Still, Yaron said the planned deficit target of 3.9% of GDP was too high.
“Complying with this deficit target depends on … there not being geopolitical developments that will require an additional increase in defense expenditures and that the assumptions in the revenue path will in fact materialize,” he said.
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Some Tankers Cross Strait of Hormuz Before Shots Fired, Ship-Tracking Data Shows
A satellite image shows the ship movement at the Strait of Hormuz on April 17, 2026, in Space. EUROPEAN UNION/COPERNICUS SENTINEL-2/Handout via REUTERS
More than a dozen tankers, including three sanctioned vessels, passed through the Strait of Hormuz after a 50-day blockade was lifted on Friday, shipping data showed, before Iran reimposed restrictions on Saturday and fired at some vessels.
Reopening the strait is key for Gulf producers to resume full oil and gas supplies to the world, and end what the International Energy Agency has called the worst-ever supply disruption.
US President Donald Trump said on Friday Iran had agreed to open the strait, while Iranian officials said they wanted the US to fully lift its blockade of Iranian tankers.
Western shipping companies cautiously welcomed the announcements but said more clarity was needed, including on the presence of sea mines, before their vessels could transit.
IRAN RESUMES RESTRICTIONS
The ships that passed through the strait on Friday and Saturday via Iranian waters south of Larak island were mainly older, non-Western-owned vessels and included four sanctioned ships, according to ship-tracking data.
Iran arranged passage for a limited number of oil tankers and commercial ships following prior agreements in negotiations, a spokesperson for Iran’s Revolutionary Guards said.
Other ships have been seen approaching the strait and turning back as Iran said it would maintain strict controls as long as the US continues its blockade of Iranian ports.
The UK Navy reported on Saturday that Iranian gunboats fired at some ships attempting to cross the strait.
Some merchant vessels received radio messages from Iran’s navy saying the strait was shut again and that no ships were allowed to pass, shipping sources said on Saturday.
Ship-tracking data showed five vessels loaded with liquefied natural gas from Ras Laffan in Qatar approaching the strait on Saturday morning.
No LNG cargoes have transited the waterway since the US-Israeli war with Iran began on February 28.
Hundreds of ships have been stuck in the Gulf since the conflict started and Tehran closed the strait, forcing Gulf oil and gas producers to sharply cut production.
Top producers such as Saudi Arabia, the UAE, Iraq and Kuwait say they need steady tanker flows and unrestricted passage through the strait to resume normal export operations.
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Trump Greenlights Russian Oil to Ease Strain on Global Markets After War with Iran
US Treasury Secretary Scott Bessent in Washington, DC, US, March 27, 2026. Photo: REUTERS/Jonathan Ernst
i24 News – The Trump administration has authorized a 30-day emergency waiver allowing the maritime purchase of Russian oil, reversing a hardline stance in an effort to stabilize skyrocketing global energy prices.
The Treasury Department announced Friday that the license for crude and petroleum products will remain in effect until May 16, 2026, responding to intense pressure from international partners struggling with the fallout of the war with Iran.
This policy pivot comes as a surprise after Treasury Secretary Scott Bessent suggested earlier this week that no further exemptions would be granted:
“As negotiations with Iran accelerate, the administration seeks to ensure oil availability for those who need it most. We must prevent a total price collapse for consumers while the geopolitical situation remains volatile.”
Ensuring global oil availability is paramount for the US as over 80 energy facilities in the Middle East have been damaged by recent war with Iran. With the November midterm elections approaching, record-high fuel prices at the pump remain a primary vulnerability for the Republican party. By allowing Russian oil back into the maritime flow, the administration hopes to neutralize “pain at the pump” before voters head to the polls.
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UK: Islamist Group Claims to Attack Israeli Embassy with ‘Drones Carrying Radioactive, Carcinogenic Materials’
A UK man has been arrested for allegedly threatening a group of Jews while wielding an ax on Rosh Hashanah. Photo: Tony Webster / Wikimedia Commons.
i24 News – British police officers in protective clothing were seen investigating a “security incident” near the Israeli embassy in London on Friday, after a jihadist group put out a video showing it launching two drones allegedly carrying radioactive and carcinogenic materials toward the embassy.
“There is an increased police presence in Kensington Gardens and officers are assessing a number of discarded items. As a precaution, some of the officers who have been deployed are wearing protective clothing. We recognize this may concern local residents and the wider public,” police said in a statement.
“Counter Terrorism Policing London are aware of a video shared online overnight in which a group claims to have targeted the nearby embassy of Israel with drones carrying dangerous substances,” the statement further read. “While we can confirm that the embassy has not been attacked, we are carrying out urgent inquiries to determine the authenticity of the video and to identify any potential link between it and the items discarded in Kensington Gardens.”
The incident comes amid a steep hike in antisemitic attacks in Britain targeting Jewish and Israeli individuals and institutions.
The group that released the video was identified as Harakat Ashab al-Yamin al-Islamia, a shadowy entity with suspected ties to Iran. It has already claimed seven attacks against Jewish institutions, including an arson attack in London where four ambulances owned by the Hatzolah charity were torched.