Jerusalem, 21 July, 2025 (TPS-IL) — The Bank of Israel’s Monetary Committee released its “Monetary Policy Report First Half of 2025.” The Monetary Committee kept the interest rate unchanged at 4.5% in all its decisions in the first half of 2025 saying, “in view of the geopolitical uncertainty, but global and domestic, and considering the inflation environment, the Monetary Committee’s policy focused on stabilizing the markets and converging inflation to its target, alongside supporting economic activity.”
At the end of the first half of 2025, the year over year inflation rate was 3.1% (CPI for May), above the target range, compared to 3.4% at the end of the previous half year (CPI for November 2024). The inflation rate of nontradable components remained stable at a high level of 3.9% (May CPI), reflecting excess demand on view of supply constraints. The year-over-year inflation rate during the period was volatile, ranging from 3.1 to 3.8%, in view of tax increases, particularly the increase in VAT in January, and influenced by the travel abroad component. According to forecasters, inflation is expected to converge to the target range in the third quarter of 2025—similar to the assessment at the end of the previous half-year. Expectations and forecasts for a range of 1 year and for longer ranges declined during the reviewed period, and are around the midpoint of the inflation target range.
The cumulative deficit in the state budget over the past 12 months totaled 5% of GDP in June. Total government receipts from taxes in June, excluding legislative changes and one-off revenues, returned to the long-term trend (in fixed prices), after being above the trend line at the end of the previous half-year. The immediate budgetary cost of Operation Rising Lion is estimated at 1% of GDP. According to the Research Department’s July 2025 forecast, the debt to GDP ratio is expected to rise from 68% in 2024 to 70% in 2025 and 71% in 2026.