The Bank of Israel said Monday it will leave its benchmark interest rate unchanged at 4% for the next six weeks, a move that matched most economists’ expectations and keeps the prime rate at 5.5%.
The decision came hours after the Knesset approved the 2026 state budget and as concerns grow over a prolonged war, surging energy prices and an expected jump in gas prices above 8 shekels a liter later this week.
The war with Iran is adding fresh uncertainty to Israel’s growth outlook, while wider market turmoil has pushed up oil prices and intensified stagflation fears globally.
The main factor preventing another rate cut, after reductions in November 2025 and January 2026, is concern over a renewed inflation flare-up. Israel’s annual inflation rate stood at 2% ahead of the decision, within the government’s 1% to 3% target range, but rising fuel, transport, production and flight costs could push it back toward the top of that band.
Also weighing on the decision were geopolitical uncertainty, stronger demand alongside supply constraints and the monthlong shutdown of the education system, which has also affected the labor market.
In its previous rate decision in February, the central bank cited geopolitical risks tied to Iran, a tight labor market and inflation risks tilted upward as reasons for caution.