Alongside the decision, the Research Department forecast an average interest rate of 3% in the third quarter of 2027. This is a conditional economic scenario, not a guaranteed timetable for cuts. For anyone planning a major expense or considering a financial commitment, that distinction matters more than the small difference between the two figures.
Inflation Has Moderated, but the Risks Remain
In its rate announcement, the bank noted that the Consumer Price Index fell 0.5% in September after rising 0.7% in August. Even after the monthly decline, the index's price level was higher than a year earlier. The monthly figure should therefore not be read as an announcement of a general, sustained fall in prices.
Explaining the decision, the governor emphasized forces working in different directions: alongside moderating inflation in Israel, energy prices and supply chain disruptions are increasing global price pressures. Exchange rates, domestic demand and government budget decisions may also affect the outlook.
In other words, one low index reading is not enough to determine the next decision. For readers, the useful picture combines what has already been measured, what the committee decided and which developments could change the assessment.
The Growth Forecast Contains Two Different Figures
One new aspect of the forecast's presentation is the distinction between total output and output excluding production abroad. The Bank of Israel forecasts total growth of 5.6% in 2026 and 7.5% in 2027. Excluding production abroad, the forecasts are 3.4% and 5.1%, respectively.
The governor explained that activity by Israeli companies manufacturing abroad is growing rapidly but does not necessarily rely on workers and equipment in Israel. Much of the resulting income also does not reach local households. Total growth therefore does not automatically translate into the same percentage improvement in an Israeli family's income.
This is also a useful distinction when reading economic headlines: output growth, wage changes and changes in household expenses measure different things. A business can operate in an environment of growing output while still needing to assess its own revenues and costs separately.
What Can Be Learned About 2027, and What Remains Open
The Research Department estimates inflation at 2% over the four quarters ending in the third quarter of 2027. The forecast rests on assumptions about the security environment, production and labor constraints, the budget and global developments. Changes in those assumptions can change the outcome.
The Bank of Israel specifically notes that a worsening security situation could increase reserve mobilization, weigh on activity and raise defense spending. Alongside the risks, positive developments could support a faster recovery. Both directions appear in the forecast, so there is no basis for presenting the expected interest rate as an established fact.
What to Check Following the Announcement
When assessing a financial offer, separate its written terms from assumptions about the future. Is the calculation based on the actual offered terms or on an expectation that rates will fall? Is it clear which part of the expense is known and which still depends on developments? These are questions for the institution making the offer, not personal conclusions that can be drawn from a forecast for the entire economy.
The next interest rate decision is scheduled for November 23, 2026. Until then, the figure set in the current decision is 3.25%; the figures for 2027 remain forecasts. This information is general and does not replace an assessment of your personal commitment's terms.
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