The Bank of Israel publishes a report and conclusions from the inflation target review process

• In recent years, the Bank of Israel has conducted a professional and thorough process of reexamining the inflation target. This process included various analyses, international comparisons, discussions with leading central banks worldwide, consultations with professionals within and outside the Bank, professional conferences, and more.
• The conclusion from this process is that it is appropriate to maintain the current inflation target, which is defined as price stability with an annual inflation rate of 1–3 percent. The current inflation target was set by the government in 2000, effective from 2003, and has remained unchanged since then.
• The inflation target regime has achieved its primary goal: price stability over time. The average annual inflation rate from 2003 to the end of 2023 is 1.5 percent, and medium-term inflation expectations (3–5 years) are, on average, close to 2 percent, the midpoint of the inflation target. Long-term inflation expectations (10 years) have remained anchored within the 1–3 percent range.

Today, the Bank of Israel published a report summarizing the comprehensive and in-depth work done at the Bank to examine the advantages and disadvantages of the current inflation target. The document includes a summary policy paper presenting the considerations that led to the conclusion that it is appropriate to maintain the current inflation target unchanged, as well as four research papers written by researchers in the Bank of Israel's Research Department.

Since the late 1990s, the inflation target has been the accepted and preferred framework for monetary policy management in most central banks in developed economies. Israel was among the first countries to adopt the inflation target as a policy framework, and it has become the central anchor of economic policy. According to the government's decision in August 2000, the inflation target was set at 1–3 percent from 2003, which it defined as price stability. This followed a long disinflation process that began with the Economic Stabilization Program in 1985.

The new Bank of Israel Law, enacted in 2010, defined the Bank's objectives and functions. The Bank of Israel’s primary goal, according to the Law, is to maintain price stability, followed by supporting economic activity and financial stability. As part of the Bank of Israel's strategic plan, and similar to other central banks, it was decided to reexamine the monetary policy framework, particularly the inflation target, in light of the extensive experience gained in managing monetary policy under inflation targets in Israel and worldwide.

After examining the advantages and disadvantages of alternative targets, the conclusion from the work done is to maintain the existing inflation target—a range of 1–3 percent, as it has been since 2003.

In addition to the four papers included in the report, a book of articles on the subject was also published as part of the process. Dialogues were held with other central banks, an international academic conference and a local conference with various economic stakeholders, including the Ministry of Finance, the Manufacturers Association, and the Histadrut, were held. An open discussion on the subject was held with employees from the Bank's various departments, written opinions were received from the professional community, and a survey examining the public's knowledge and attitudes on inflation and price stability was conducted.

In terms of results, the inflation target regime has achieved its primary goal: price stability over time. Although actual inflation deviated from the inflation target range in both directions for much of the period, long-term expectations remained anchored within the target range throughout the period. Thus, it serves as an example of an exceptionally successful public policy that sets, strives for, and achieves long-term goals. Today, a price stability target is a given in the Israeli economy, but at the time of its establishment, international experience in the field was initial and limited to a few countries. The success of the inflation target regime as a mechanism for stabilizing prices is global, and the fact that most OECD countries have such a target is evidence of this.

Bank of Israel Governor Prof. Amir Yaron said: “As part of the Bank of Israel's strategic plan, and similar to other central banks, it was decided to reexamine the monetary policy framework, particularly the inflation target. The Bank of Israel will continue to manage monetary policy to maintain price stability, while supporting sustainable economic growth and maintaining financial stability. Striving to achieve and maintain the inflation target—1 to 3 percent—will continue to guide the Bank of Israel in shaping monetary policy in the coming years. I thank the Research Department and various professionals at the Bank who carried out this important and comprehensive work.”