The Bank of Israel kept its benchmark interest rate unchanged at 4% in February 2026, following two consecutive rate cuts. Although inflation has moderated and the shekel has strengthened, the Central Bank highlights risks of a renewed increase of inflation. Geopolitical uncertainty has increased in recent days, particularly surrounding the possibility of a US strike on Iran, which could weigh on economic activity. Additional inflationary pressures may stem from strong domestic demand, ongoing supply constraints, and fiscal developments. However, inflation remains within the central bank’s target range, easing to 1.8% in January, marking its lowest level since June 2021 and close to the midpoint of the target range. The shekel appreciated modestly against both the US dollar and the euro. Meanwhile, economic activity continues to expand, with the latest quarterly growth rate accelerating to 4.4%. The labor market also remains tight.
