The Bank of Israel announced Monday a quarter-point interest rate cut—the first since January 1, 2024—bringing the benchmark rate to 4.25 percent.
The prime lending rate will drop accordingly to 5.75 percent. The new rates will take effect Thursday to allow banks time to adjust.
According to calculations by the Mortgage Consultants Association, conducted at ynet’s request, the rate cut is expected to lower annual mortgage payments by between 720 and 2,300 shekels ($225 to $715). Meir Wider, CEO of Wider Mortgages, said even a modest quarter-point reduction can translate into substantial long-term savings—between 21,000 and 39,000 shekels ($6,500 to $12,000) on 25-year loans.
The move follows a steady decline in inflation, which now stands at 2.5 percent—within the government’s target range of 1 to 3 percent. Negative inflation readings are expected in the final two months of 2025.
The government is also working to finalize a delayed state budget for 2026, with a Knesset vote expected in March. Meanwhile, the U.S. Federal Reserve cut interest rates earlier this month and is likely to do so again in December, raising concerns about widening rate gaps between the two economies.
Officials say the decision is also aimed at boosting economic recovery following the recent war.
One-time cut?
The main question raised following the interest rate cut, the first in nearly two years, was whether it marks a one-time move or the beginning of a series of reductions expected to continue into 2026. The next decision by the Bank of Israel is scheduled for Jan. 5, but current forecasts suggest the bank is likely to wait until late February before considering another cut.
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Bank of Israel Governor Prof. Amir Yaron
(Photo: Alex Kolomoisky)
As expected, the Bank of Israel declined to commit to further rate reductions. The standard response was repeated: officials will review economic data, monitor progress on the state budget and assess the security situation, alongside projections for economic activity in the coming months. Only then will the central bank decide whether to lower rates again.
Monday’s rate cut had been widely anticipated. Following multiple interest rate reductions in the United States and Europe, Israel was left behind as the only Western economy that had not cut rates since Jan. 1, 2024.
The reduction is expected to bring broad relief. Businesses and industrial plants carrying significant debt, mortgage holders and households facing financial strain—particularly due to prolonged reserve duty call-ups of primary earners—are all expected to benefit. The state budget will also gain some relief, as lower rates reduce the cost of servicing national debt.