Reuters poll sees Bank of Israel resuming rate cuts next week

The Bank of Israel is poised to resume rate cuts on Monday, with stable inflation, a stronger shekel and a ceasefire with Iran giving policymakers more room to ease after a brief pause. Ten of 13 economists surveyed expect a quarter-point cut to 3.75%, while three forecast no change from 4.00%.

The case for action rests on a cooler inflation picture than the central bank faced earlier this year. Consumer prices rose 1.9% in April, inside Israel’s 1% to 3% target band, while market expectations put inflation at 1.7% a year from now. That is a sharp shift from the inflation and currency pressures that kept the Monetary Committee cautious through the spring.

At the same time, the economy is still absorbing the cost of the 40-day war with Iran. Gross domestic product shrank at an annualized 3.3% in the first quarter of 2026, a smaller drop than economists had expected, but still a clear sign of strain. Israel’s economy grew 2.9% in 2025, and the Bank of Israel’s monthly index of economic activity fell 0.2% in April, reinforcing the picture of a recovery that remains fragile. The budget deficit eased to 3.8% of GDP in April, but fiscal pressure has not disappeared.

The central bank’s own March 30 statement left the policy rate unchanged at 4.00% and described rising geopolitical uncertainty as a key factor in its decision. It also said the shekel weakened 0.8% against the U.S. dollar and strengthened 1.4% against the euro over the review period, while owner-occupied housing services inflation in the February CPI reading rose 4.5%. In January, the Bank of Israel cut rates for the first time in nearly two years, but it has moved carefully since then.

The Bank of Israel Research Department’s January forecast projected GDP growth of 5.2% in 2026 and inflation of 1.7% that year, with 2.0% in 2027. The March staff forecast assumed Operation Roaring Lion and the fighting in Lebanon would end toward the end of April, and it now sees two rate cuts by early 2027 with growth of 3.8% in 2026. That mix of softer inflation, a firmer currency and weaker activity has changed the calculus, but the path ahead still depends on whether the ceasefire endures and regional conflict stays contained.