Policy rate likely to remain unchanged today amid resilient activity data, tight labor market and security tensions

ISRAEL - In Brief 23 Feb 2026 by Sani Ziv

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Following the publication of the Bank of Israel’s Monthly Index of Economic Activity and the latest job-vacancy data from the Israel Central Bureau of Statistics, we maintain our assessment that there is a high probability the policy rate will remain unchanged at 4.0% today. The data point to continued expansion in activity in January and a still-tight labor market with potential wage pressures, even as inflation has moderated. Against the backdrop of rising security tensions, the Bank is likely to adopt a cautious stance.  Looking ahead, we expect gradual easing later in the year, with the policy rate projected to decline toward 3.25%-3.5% by year-end, assuming inflation remains contained and geopolitical risks stabilize. Index of Economic Activity The Bank of Israel’s Monthly Index of Economic Activity rose by 0.5% in January, above its estimated long-term monthly growth trend of around 0.3%, pointing to a solid start to 2026. The index reflects the average monthly growth estimate for the period from November to January and shows that growth at the start of 2026 continues to advance. The index was positively influenced by data on credit-card purchases in January, trade industry revenue and industrial production index data for November, retail trade index data for November and December, and goods import and financial index data for January. In contrast, figures for actual employment and gasoline consumption in December, net indirect tax and VAT receipts in December and January, and goods exports in January mitigated the increase in the index. The Monthly Index of Economic Activity Source: Bank of Israel Labor market remains tight, but slightly cooled in January Job va...