The Bank of Israel Monetary Committee maintained the interest rate at 4%, halting a streak of two consecutive 0.25% cuts implemented in November and January. Most analysts had anticipated a third reduction until geopolitical tensions with Iran altered the calculus, Globes noted.

"Geopolitical uncertainty has resurfaced in recent days in view of a potential confrontation with Iran, and Israel's risk premium increased slightly," the Bank of Israel stated in its announcement, explaining the decision to pause rate cuts despite favourable inflation dynamics.

The pause comes as Israel's inflation control strategy continues delivering results. Annual inflation steadied at 2.6% to close 2025 within the 1-3% target range, before cooling further to 1.8% in January. The Bank expressed optimism about future cuts once Iran-related uncertainties are resolved, noting that "the development of annual inflation is in line with previous assessments."

Economic indicators beyond inflation have shown strength. The shekel appreciated 1.1% against the dollar and 0.4% against the euro since the previous rate decision. National accounts data for Q4 2025 revealed quarterly growth of 4% on a seasonally adjusted annual basis, exceeding long-term trend expectations.

The Bank's stance suggests monetary policy normalisation remains on track, contingent on geopolitical stability. The decision reflects careful balancing between supporting economic growth through rate cuts and maintaining policy flexibility amid potential military escalation with Iran.