Bank of Israel lowers interest rates for second straight time, to 4%, citing ceasefire optimism

In a surprising move, the Bank of Israel decides to lower interest rates to 4 percent, and says it expects the economy to grow at a faster pace this year and in 2026, as the inflation environment eases and “Israel’s risk premium is close to its prewar level.”

The central bank cuts borrowing costs from 4.25% to 4% and says it now forecasts that the country’s economy will grow by 2.8% in 2025 and 5.2% in 2026. That projection has been revised from a September growth estimate of 2.5% in 2025 and 4.7% in 2026.

“The forecast was formulated under the assumption that the ceasefire will be maintained and that the volume of reserve military service will continue to decline,” the central bank says in a statement.

In its previous rate decision in November, the central bank cut borrowing costs for the first time in almost two years to 4.25% from 4.5%, following a ceasefire agreement with the Hamas terror group in Gaza.