For the first time since January, the Bank of Israel has cut its interest rate. The Monetary Committee announced today a reduction from 4% to 3.75%, a quarter point cut that was widely expected but left some in the industry hoping for more.

The decision comes against the backdrop of a sharply strengthening shekel and easing inflation, which currently sits at 1.9% annually. The Bank noted in its statement that geopolitical uncertainty both locally and globally remains significant, and that the Roaring Lion operation continues to affect economic activity, though recent data shows signs of recovery.

On the shekel, the Bank was direct: since its last interest rate decision, the shekel strengthened 8.3% against the dollar and 7.2% against the euro. That is a dramatic move that is already reshaping the market.

What Does This Mean for Mortgage Holders?

The Mortgage Advisors Association welcomed the decision but was quick to put it in perspective. On a NIS 1 million mortgage over 25 years, with NIS 450,000 on the prime track, this cut reduces the monthly payment by around NIS 67 and saves approximately NIS 20,000 over the life of the loan. Meaningful, but not life-changing.

They also noted that since the peak rate of 4.75%, cumulative cuts have now reached a full percentage point. That is real progress. But monthly payments are still significantly higher than they were before the rate hike cycle began, and with average mortgage sizes growing alongside property prices, many households are still carrying a heavy financial load.

The Association called on banks to pass on the full rate cut to borrowers quickly and transparently, and urged the government to use this window of opportunity to tackle housing costs that are pushing young families out of the market.

Developers Want More

The construction industry was less enthusiastic. The Vice President of the National Contractors Association said the Bank is moving in the right direction but far too slowly. With strong tax revenues, inflation back near target, and low unemployment, he argued the conditions were already there for a bigger cut, and called on the Bank to move more aggressively at its next decision.

Source: Bosso, N. (2026, May 25). בפעם הראשונה מאז תחילת ינואר: בנק ישראל הפחית את הריבית ל-3.75% [For the first time since January: Bank of Israel cuts interest rate to 3.75%]. Nadlan Center. https://www.nadlancenter.co.il/article/14567