Bank of Israel Holds Interest Rate at 4.50% Amid Ongoing Geopolitical Uncertainty

The Bank of Israel held its benchmark interest rate at 4.50% at its August 2025 monetary policy meeting, citing what the central bank described as significant and ongoing geopolitical uncertainty. The decision, announced on 20 August 2025, came as economic activity recovered from a marked decline during the June military operation against Iran, amid continued high geopolitical uncertainty.

MONETARY COMMITTEE STATEMENT

The Monetary Committee said geopolitical uncertainty remained high and that the rate path would depend on inflation converging to its target range, financial-market stability, economic activity and fiscal policy.

Annual inflation stood at 3.1% in July, slightly above the upper bound of the 1-3% target range, while second-quarter GDP contracted at an annualised 3.5% because of the June operation before activity rebounded in July.

FISCAL POSITION

The three major credit rating agencies downgraded Israel's sovereign rating in 2024. The budget deficit stood at 4.9% of GDP in July, and the government decided to raise the 2025 deficit ceiling to 5.2% of GDP.

The August decision to hold at 4.50% was the 13th consecutive meeting at which the Bank of Israel left the rate at 4.50%, following its cut from 4.75% in January 2024. The next interest rate decision was scheduled for 29 September 2025.