Bank of Israel Holds Interest Rate Steady as Inflation Stays Subdued

The Bank of Israel's Monetary Committee kept its benchmark interest rate at 3.25% on October 21. Annual inflation stood at 1.6% in September, when consumer prices fell 0.5%, while the bank said growth continued and the labor market remained tight. Its Research Department forecasts GDP growth of 5.6% in 2026 and 7.5% in 2027, with inflation of 1.5% and 2.1%, respectively. The bank warned that extra defense spending without offsetting budget adjustments could widen the deficit and increase inflation. It said future rate decisions would depend on inflation, economic activity, geopolitical uncertainty and fiscal developments.