The Bank of Israel Monetary Committee lowered the national interest rate to 3.50% from 3.75% on Monday, July 6, 2026. The central bank cited the strength of the shekel, a decline in inflation, declines in energy prices, the stabilization of geopolitical tensions, and the Memorandum of Understanding between the US and Iran as factors in its decision.

The committee is headed by Amir Yaron. This interest rate reduction followed a previous cut of 0.25% at a meeting in late May 2026. Prior to these reductions, the Bank of Israel had kept interest rates unchanged at 4% in March 2026.

The central bank stated, "The inflation rate in May remained stable around the midpoint of the target range, and the risk premium is similar to before October 2023." The bank also stated, "Overall during the reviewed period, the shekel depreciated with high volatility."

Finance Minister Bezalel Smotrich responded to the decision in a post on X/Twitter. He stated, "The minimal reduction in the interest rate does not match the challenges facing households and businesses, is not connected to the needs of the economy, and makes it harder for the high-tech sector and exports." Smotrich added, "A sharp reduction in the interest rate is the right step that will ease the cost of living and balance the strengthening of the shekel."

The Bank of Israel Research Department predicts GDP growth of 4% by the end of 2026 and 5.5% in 2027. The central bank noted that these predictions are dependent on external budget calls. The bank stated, "The Research Department's assessment is that if the defense budget is not increased beyond the buffer reserved in the State budget, the government's budget deficit is expected to be 4.9% of GDP in 2026 and 4.2% of GDP in 2027." In May 2026, the annual rate of increase in the housing component of the Consumer Price Index rose to 4%.