The Monetary Committee decides on November 24, 2025 to lower the interest rate to 4.25 percent

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• Annual inflation has moderated, and stood at 2.5 percent in the past two readings. Forecasters project that there will be some increase in inflation at the end of the year, and that it will then decline and stabilize around the midpoint of the target range.
• Economic activity recovered sharply in the third quarter. GDP expanded at a rate of 12.4 percent in annual terms, but its level remains lower than its long-term trend.
• The labor market remains tight. The ratio between the number of job vacancies and the number of unemployed remains high and the pace of wage increases continues to rise.
• Home prices continued to decline in October, for the seventh consecutive month, and the downward trend in the number of home purchase transactions continues.
• The domestic equity indices increased, and were prominently positive relative to indices abroad. Israel’s risk premium, as measured by the CDS spread, declined during the reviewed period, and is slightly above its prewar level.  Government bond spreads continued to decline.
• Since the previous interest rate decision, the shekel has appreciated by 1.3 percent against the US dollar, by 2.9 percent against the euro, and by 2.2 percent in terms of the nominal effective exchange rate.

 

The Monetary Committee’s policy is focusing on price stability, support for economic activity, and stability of the markets.  The interest rate path will be determined in accordance with the development of inflation, economic activity, geopolitical uncertainty, and fiscal developments.

 

 

 

For the file of figures accompanying this notice (in hebrew, english will be puplished soon), click here. 

 

 

In view of geopolitical developments, economic activity in Israel recovered sharply during the third quarter. Annual inflation moderated and entered the target range.  During the reviewed period, the shekel appreciated and Israel’s risk premium continued to decline to slightly above its prewar level.

 

The Consumer Price Index increased in October by 0.5 percent after declining by 0.6 percent in September, resulting in an annual inflation rate of 2.5 percent in both readings (Figure 1).  Net of energy and fruit and vegetables, the annual inflation rate is 2.7 percent (Figure 2). The annual inflation rate of nontradable components declined to 3.0 percent, and the annual pace of inflation of the tradable components remained stable at 1.5 percent (Figure 3). According to forecasters’ projections, there will be some increase in inflation at the end of the year, and it will then decline and stabilize around the midpoint of the target range (Figure 5). Inflation expectations for one year forward from the various sources declined, and are around the midpoint of the target range (Figure 6).  Expectations for the second year onward also remain near the midpoint of the target range (Figure 7).  

 

In the Committee’s assessment, there are several risks of renewed acceleration of inflation: geopolitical developments and their impact on economic activity, an increase in demand alongside supply constraints, and fiscal developments.

 

Since the previous interest rate decision, the shekel has appreciated by 1.3 percent against the US dollar, by 2.9 percent against the euro, and by 2.2 percent in terms of the nominal effective exchange rate.

 

National Accounts data for the third quarter indicate that GDP expanded sharply, at a rate of 12.4 percent in annual terms (Figure 10).  Business output grew by 14.9 percent in annual terms in the third quarter.  Third quarter growth reflects increases in all GDP components, following contraction in the second quarter due to the military operation against Iran.  The deviations of GDP and business output levels from their long-term trends moderated, to 3.4 percent and 4.6 percent respectively (Figure 11).  In the third quarter, there was an increase in uses, which was met with a sharp increase in imports.  Private consumption grew by 23 percent, and public consumption (excluding defense imports) grew by 19.1 percent in annual terms.  Accordingly, imports (excluding diamonds, defense imports, ships and aircraft) increased by 36.8 percent in annual terms.

 

Current indicators published so far for the fourth quarter point to lively economic activity.  Credit card expenditure figures in current prices for October–November are slightly higher than the trend line (Figure 13).  The aggregate balance in the Central Bureau of Statistics Business Tendency Survey for October increased, but remains lower than it was prior to the war (Figure 12).  There was improvement in the manufacturing, trade, and service industries in October, while the balance in the construction and hotel industries worsened. The consumer confidence index increased sharply in October. Capital raised by the high-tech sector remains high in the fourth quarter (Figure 14).  The trend of recovery in foreign trade continued during the reviewed period, and goods imports and exports continued to increase in October (Figure 21).

 

The cumulative deficit in the government budget in the past 12 months stabilized at 4.9 percent of GDP in October. Government receipts from direct taxation in October (in fixed prices and net of legislative changes and one-off revenues) are higher than the long-term trend (Figure 15). 

 

The formulation of a 2026 budget that implements a downward path in the debt to GDP ratio will help maintain the markets’ trust and, accordingly, support the stability of bond yields and anchor inflation expectations.

 

In view of supply constraints, the labor market remains tight. The ratio between the number of job vacancies and the number of unemployed remains high (Figure 17b) and the pace of nominal and real wage increases in the business sector continued to rise.  The job vacancy rate was stable, at a high level of 4.5 percent in October (Figure 17a).  The employment rate among the prime working ages (25–64) increased to 78.9 percent in October, and the participation rate increased to 81.1 percent (Figure 16a).  The broad unemployment rate among the prime working ages (25–64) was 2.9 percent in October (Figure 16b). The rate of temporary absentees due to reserve duty was 0.7 percent in October. Wages in the business sector increased in July–September by 5.2 percent (in annual terms) relative to the third quarter of 2023 (Figure 19).

 

Home prices continued to decline in October, for the seventh consecutive month, and the annual pace of increase is 0.5 percent (Figure 8).  The quantity of home purchase transactions has continued to decline in recent months, and is lower than in the same period last year.  At the same time, the increase in the stock of unsold new homes continues. The owner-occupied housing services component (rents in new and renewing contracts) declined by 0.9 percent in October, and its annual pace of increase moderated to 3.1 percent.  Mortgage borrowing totaled about NIS 8.4 billion in October, seasonally adjusted (taking into account the holiday period) (Figure 9).

 

The equity indices in Israel increased during the reviewed period, and were prominently positive relative to indices abroad (Figure 28). Israel’s risk premium, as measured by the CDS spread, declined during the reviewed period, but remains slightly higher than its prewar level.  The spreads on dollar-denominated and shekel-denominated government bonds continued to decline (Figures 29a-b).  The S&P ratings agency revised Israel’s ratings forecast from negative to stable. Business credit continued to expand at a rapid pace, led by credit to large businesses. The rate of business credit more than 90 days in arrears remains relatively low.  According to the Central Bureau of Statistics Business Tendency Survey for October, there was a moderate decline in the rate of small businesses reporting serious constraints in bank credit (Figure 27).

 

Global economic activity continues to expand moderately.  The global growth forecast for 2025 was revised slightly upward (Figure 30), and the global Purchasing Managers Index for October increased to a level that indicates continued expansion of global GDP (Figure 33). The pace of expansion of world trade remained moderate (Figure 32).

In the US, various sentiment indices indicate continued expansion of economic activity.  In particular, the Purchasing Managers Index surprised positively, influenced by the increase in the services sector. The moderate recovery in the eurozone continued, with growth in the current quarter at a similar pace to the previous quarter. In China, growth was slightly above the forecasts, but various indicators point to some weakness in private consumption.

Inflation stabilized in most countries. In the United States, inflation (CPI) in September (October data have not been published) increased to 3 percent. Core CPI moderated to 3 percent as well. In the eurozone, inflation remains moderate.  Inflation in October declined slightly to 2.1 percent, while core inflation remained unchanged at 2.4 percent.  Most central banks left their interest rates unchanged during the period.  The Federal Reserve lowered its interest rate by 25 basis points (as expected), and the ECB again left its rate unchanged (Figure 34).

 

 

The minutes of the monetary discussions prior to this interest rate decision will be published on December 8, 2025. The next decision regarding the interest rate will be published on Monday, January 5, 2026.