Weekly report, July 6, 2026: Bank of Israel cuts rates and upgrades the macro outlook
The Bank of Israel lowered its policy rate by 25 basis points to 3.50%, in line with our expectations and market pricing. This follows previous rate cuts in December 2025, January 2026 and May 2026, bringing cumulative easing to 100bp over the past seven months.
The tone has become somewhat less hawkish and includes several new dovish elements. Most notably, the Monetary Committee no longer states that "the risks of renewed inflation have increased". Instead, it notes that "there are several factors that could affect inflation in opposite directions", reflecting a more balanced assessment of the inflation outlook. At the same time, the statement acknowledges that "inflation remained stable around the midpoint of the target range" and that inflation expectations for the coming year are "below the midpoint of the target range", in contrast to the previous statement, which emphasized rising inflation expectations following higher global energy prices.
Alongside the interest-rate decision, the Bank of Israel published an updated macroeconomic forecast. Compared with the March projections, the new baseline scenario is more optimistic regarding inflation, the fiscal outlook and the path of monetary policy, while changes to the growth outlook are relatively modest.
The bank revised its 2026 GDP growth forecast up slightly to 4.0%, from 3.8% in March, reflecting stronger-than-expected national accounts data for the first quarter and a gradual easing of supply constraints as reservists return to work and the number of foreign workers increases. However, the bank continues to stress that economic activity is expected to recover gradually, with output remaining below its pre-war trend even at the end of 2027 because labor supply is still expected to remain constrained.
The high-tech sector remains the main growth engine of the Israeli economy. Its impact extends well beyond GDP growth, affecting the balance of payments, the exchange rate, tax revenues and income inequality. Last week, new data were released on high-tech services exports for April 2026 and on startup fundraising during the first half of the year. Both indicators point to continued strength in the sector. In other economic news, credit-card spending rebounded in May following an increase in April, and wage growth accelerated in May.
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