The Monetary Committee decides on May 26, 2025 to leave the interest rate unchanged at 4.5 percent. | בנק ישראל - הבנק המרכזי של ישראל
Central bank: boi | Type: statement | Date: 2025-05-26

The Monetary Committee decides on May 26, 2025 to leave the interest rate unchanged at 4.5 percent.
The Monetary Committee decides on May 26, 2025 to leave the interest rate unchanged at 4.5 percent.
26/05/2025
Economic activity continues to recover moderately alongside high domestic and global uncertainty.
Inflation in the past 12 months increased, to 3.6 percent, which is above the upper bound of the target range. The forecasters project that the convergence of inflation to the target range will be later than their assessments prior to the publication of the April CPI.
GDP grew by 3.4 percent in annual terms in the first quarter of 2025. The growth was mainly influenced by investment, services exports, and current consumption.  The GDP’s shortfall from its long-term trend remained virtually unchanged, at about 4 percent.
Since the previous interest rate decision, the shekel has appreciated by about 4.5 percent against the US dollar, by 1 percent against the euro, and by 2.3 percent in terms of the nominal effective exchange rate.
The labor market remains tight, but the most recent data indicate some moderation. The ratio between the number of job vacancies and the unemployed moderated, but remains high.
Activity in the housing market slowed somewhat. The number of housing transactions declined in March, and the stock of unsold homes increased.  The annual pace of increase in home prices moderated, and the annual pace of increase in the housing component of the CPI continued to increase.
Israel’s risk premium, as measured by the 5-year CDS price and by the spreads on dollar-denominated government bonds, declined with volatility during the reviewed period, but remains higher than in the prewar period.
In view of the continuing war, the Monetary Committee’s policy is focusing on stabilizing the markets and reducing uncertainty, alongside price stability and supporting economic activity. The interest rate path will be determined in accordance with the convergence of inflation to its target, continued stability in the financial markets, economic activity, and fiscal policy.
Economic activity continues to recover at a moderate pace, alongside high domestic and global uncertainty.  The pace of annual inflation increased, and according to forecasters’ projections it is expected to remain above the target range in the coming months. GDP grow at a slightly lower pace than its long-term trend, such that the GDP shortfall remained virtually unchanged. The economy’s risk premium declined with volatility during the reviewed period, although it remains higher than its prewar level.
The Consumer Price Index for March increased by 0.5%, and the Index for April increased by 1.1 percent, partly affected by the price of flights abroad.  Inflation in the past 12 months increased to 3.6 percent, above the upper bound of the target range (
).  Net of energy and fruit and vegetables, the annual inflation rate was 3.8 percent (
). Net of flights abroad, the prices of which experience large seasonal changes, annual inflation in April was 3.5 percent. The annual inflation rate in April reflects an increase in inflation of the nontradable components to 4.2 percent, and lower inflation of the tradable components, which fell to 2.5 percent (
). According to forecasters’ projections, the convergence of inflation to the target range will be later than their assessments prior to the publication of the April CPI (
). Inflation expectations for one year forward from the various sources remain stable and are around the midpoint of the target range (
).  Expectations for the second year onward remain near the midpoint of the target range (
In the Committee’s assessment, there are several risks for a possible acceleration of inflation or for it not converging to the target range: geopolitical developments and their impact on economic activity, supply constraints, worsening global terms of trade, and volatility of the shekel.
Since the previous interest rate decision, the shekel has appreciated by about 4.5 percent against the US dollar, by 1 percent against the euro, and by 2.3 percent in terms of the nominal effective exchange rate.
National Accounts data for the first quarter of 2025 show that GDP expanded by 3.4 percent in annual terms relative to the fourth quarter of 2024 (
). Following a revision of the data for previous quarters, the shortfall from the long-term growth trend remains virtually unchanged, at about 4 percent.  Business output increased at a higher rate—4.4 percent in the first quarter of the year, but its level remains lower than it was before the war. First quarter growth was influenced mainly by fixed capital formation, services exports (led by high-tech), and current consumption.  This was partly offset by a decline in private consumption due to a decline in the consumption of durable goods (mainly vehicles) as purchases were brought forward to the end of 2024, and a decline in public consumption (
Current indicators of economic activity in April­–May show that credit card expenditure data in current prices increased in April (
).  The Central Bureau of Statistics Business Tendency Survey shows that the aggregate balance for March and April declined slightly, and its level remains similar to its prewar level (
). The balance of the construction industry declined relative to February–March, and is lower than its prewar level.  Capital raised in the high-tech sector increased during the reviewed period, and was higher than its prewar level (
). According to foreign trade data, there was a marked decline of about 14.5 percent in goods exports in April, alongside a 1.7 percent increase in goods imports.
The cumulative deficit in the government budget in the past 12 months, after accounting for deferred tax payments in 2024 from April to May, amounted to 5.4 percent of GDP. Government tax receipts in the past three months returned to near the long-term trend (
The labor market remains tight, but there is some moderation in the most recent data.  The ratio of the number of job vacancies to the number of unemployed moderated, but remains high. The broad unemployment rate is low, but it has increased—from 2.9 percent in January to 3.4 percent in April (seasonally adjusted) (
Figure 13b
). The job vacancy rate declined slightly, to 4.2 percent in April (
Figure 15a
). The rate of temporary absentees due to reserve duty increased by 0.1 percentage points to 0.5 percent in April. The employment rate and the participation rate among those aged 25–64 in April are slightly lower than their prewar level, at 78.7 percent and 80.9 percent respectively (
Figure 13a
). Nominal wages in annual terms were about 4.3 percent higher in January–March than they were in the three months prior to the war. Real wages increased slightly, but remain below the long-term trend line (
Activity in the housing market slowed slightly in March.  The number of housing transactions (seasonally adjusted) declined in March, and the stock of unsold homes increased.  In April, new mortgage borrowing totaled about NIS 8 billion (
). The pace of increase in home prices moderated, to 6.4 percent in February–March, compared with 7.3 percent in the previous month (
). The pace of annual increase in the housing component of the CPI increased to 4.4 percent in April, while the owner-occupied housing services component (rents in new and renewing contracts) increased at an annual rate of 4.2 percent.
During the reviewed period, there were increases in the equity indices in Israel, similar to the global trend (
). Israel’s risk premium, as measured by the 5-year CDS and by the dollar-denominated government bond spread, declined during the reviewed period, but remains higher than in the prewar period (
). Yields on 10-year unindexed Israeli government bonds increased during the reviewed period, similar to other countries, but the spread between them and 10-year US Treasuries narrowed. (
).  Business and household credit continued to expand, as interest rates on credit remained stable.  Despite the increase in the rate of credit in arrears among small and medium firms in the most recent data, business credit risk remains moderate.
Globally, economic activity figures for the first quarter show a mixed trend. The global purchasing managers index for April declined, but remains at a level indicating moderate expansion (
). World trade slowed during the reviewed period, although the pace of expansion in the past year remains positive in view of purchases being brought forward before the US tariffs took effect. (
). GDP in the US contracted by 0.3 percent in annual terms in the first quarter of the year, while private consumption grew by 1.8 percent.  In contrast, the US labor market continued to show strength in April, with a high level of job additions and stable wage figures. In the eurozone, GDP grew by 0.3 percent in annual terms in the first quarter.  In China, first quarter growth was 5.4 percent in annual terms.
In the United States, the Consumer Price Index (CPI) declined surprisingly to an annual rate of 2.3 percent, and the core CPI was 2.8 percent, in line with expectations. Inflation in the eurozone remained unchanged at 2.2 percent, and core inflation increased to 2.7 percent.  Many central banks in advanced economies continued to lower interest rates. The ECB lowered its rate by 25 basis points for the seventh time consecutive time since the process began. The Federal Reserve left its rate unchanged in March, and the interest rate path priced in by the markets increased during the reviewed period (
The minutes of the monetary discussions prior to this interest rate decision will be published on Jun 9, 2025. The next decision regarding the interest rate will be published on Monday, July 7, 2025.
Interest rate decision dates for 2024 and 2025 are available at: