The Bank of Israel keeps interest rates unchanged amid tensions with Iran and inflation pressures

Investing.com - The Bank of Israel announced on Monday that it will keep its benchmark interest rate unchanged amid recent geopolitical uncertainties related to potential tensions with Iran. The Monetary Committee continues to focus policy on price stability, supporting economic activity, and market stability.

The annual inflation rate for January fell to 1.8%, approaching the midpoint of the target range, after an increase in December. The Consumer Price Index decreased by 0.3% in January, while remaining flat in December. The annual growth rate of the housing services component rose from 2.6% in November to 3.8% in January, and housing prices have started rising again in the last two index readings.

Preliminary estimates of the national accounts data for Q4 2025 show a seasonally adjusted annualized quarterly growth rate of 4%, above the long-term trend. Q4 GDP growth was driven by a significant 25.6% increase in exports, with current consumption growing by 3.6%. Overall for the year, GDP grew by 3.1%.

The labor market remains tight, with the ratio of job vacancies to unemployment staying high; vacancy rates in December and January remained steady at 4.6%. The broad unemployment rate for core working-age populations stayed low at 3.2% in December. From September to November, wages in the business sector increased by 5.1% year-over-year.

Since the last rate decision, the shekel has appreciated by 1.1% against the US dollar and 0.4% against the euro. Recently, due to developments in geopolitical tensions, Israel’s risk premium has slightly increased, approaching pre-war levels. The cumulative government budget deficit over the past 12 months in January increased to 4.9% of GDP.

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