The Bank of Israel is forecast to leave short-term interest rates unchanged at 4.0% when it announces its decision on Monday at 4 p.m. (1300 GMT), followed by a media briefing from Governor Amir Yaron. In a Reuters poll, all 13 economists surveyed predicted the central bank would hold the benchmark rate for a second consecutive month.
After cutting rates twice in November and January, policymakers opted to stand pat on February 23 in a unanimous vote, citing uncertainty related to a potential attack on Iran. That uncertainty intensified after U.S. and Israeli strikes on February 28, which prompted Iran to largely close the Strait of Hormuz and pushed oil prices higher.
Ofer Klein, head of economics and research at Harel Insurance and Finance, captured the prevailing view among market observers: "As long as the fighting continues and Israel's risk premium remains high, the central bank is expected to remain on hold." Economists had previously anticipated the policy rate dropping to between 3% and 3.5% over the course of the year; they now foresee a single 25-basis-point reduction instead.
Inflation trends have supported the central bank's cautious stance. Annual consumer inflation rose to 2.0% in February from 1.8% in January, and officials have kept a careful line since the Gaza war began on October 7, 2023, due in part to supply-driven price pressures. "It will take at least few months to figure out the supply constraints, excess demand, all the mix we had during the war until the last ceasefire (in October)," said Rafi Gozlan, chief economist at IBI Investment House.
Analysts additionally point to the inflationary implications of the 2026 state budget. Greater military spending has contributed to a higher deficit target, now close to 5% of gross domestic product, and the legislature has until March 31 to approve the budget to avoid triggering snap elections.
Despite the headwinds from the Gaza war, Israel's economy expanded 2.9% in 2025. The Bank of Israel had earlier projected growth would accelerate to more than 5% this year, but that projection is expected to be downgraded when the central bank issues updated economic forecasts alongside the rate decision on Monday.
JPMorgan economist Anatoliy Shal highlighted the broader policy challenge facing the bank: "The Bank of Israel will probably find it harder to proceed with policy easing in the near-term," noting the tendency to view wartime economic effects as inflationary. "This episode will probably be no exception," he said.
With other major central banks either pausing or increasing rates, Israel's monetary authorities are weighing a complex mix of supply-side constraints, geopolitical risk premiums, and fiscal developments as they determine near-term policy direction. The rate announcement will be accompanied by fresh economic projections that markets will scrutinize for guidance on the timing and scale of any future easing.