The Bank of Israel's October 2026 staff forecast sees inflation of 1.5% for 2026 and 2.1% for 2027, and expects the policy interest rate to average 3.0% in the third quarter of 2027. It puts headline GDP growth at 5.6% for 2026, or 3.4% excluding Israeli firms' production abroad, a measure the bank says better reflects domestic activity.
Key Takeaways
- The Bank of Israel kept its interest rate unchanged at 3.25% on October 21, 2026.
- Headline GDP growth is forecast at 5.6% for 2026, or 3.4% excluding production abroad.
- Inflation is forecast at 1.5% for 2026 and 2.1% for 2027, within the 1%–3% target range.
- The Research Department expects the interest rate to average 3.0% in the third quarter of 2027.
- Israel's Debt-to-GDP is expected to drop to 66.5% in 2027, resuming the general downward trajectory over the past 25 years.
- The bank describes the current period as having a high level of uncertainty, and its forecast may change.
Last updated: October 25, 2026
What did the Bank of Israel publish in October 2026?
On October 21, 2026, the Bank of Israel published its Research Department's quarterly staff forecast for 2026–2027, alongside the Monetary Committee's decision to keep the interest rate unchanged at 3.25%. According to the bank, the forecast was presented to the Monetary Committee on October 20, before the rate decision.
The forecast covers GDP, inflation, the interest rate, unemployment and the government's budget figures. The bank describes it as based on several models, various data sources and economists' judgment.
How fast does the Bank of Israel expect Israel's economy to grow?
The Bank of Israel forecasts GDP growth of 5.6% in 2026 and 7.5% in 2027. Excluding production abroad, its forecast is 3.4% for 2026 and 5.1% for 2027.
These rates of annual GDP growth are unusually high, even compared to the past decade of Israeli growth, which was already about twice the average growth rate of the OECD nations (1.9%) and the United States (2.4%).
The bank says that, under its assumptions, GDP excluding production abroad will continue to converge toward its prewar trend, alongside a recovery of employment. It also expects demand to expand, supported by a lower interest rate environment and risk premium, a recovery in construction, and increased investment in machinery and equipment. Its forecast for fixed capital formation (excluding ships and aircraft) is 10.5% growth in 2026.
Why are there two different GDP growth figures?
The headline figure includes "production abroad," meaning goods sold overseas by Israeli companies through subcontractors or affiliates abroad, which the Bank of Israel says does not reflect domestic activity. For this reason, the bank bases its economic analysis on GDP excluding production abroad.
According to the bank, production abroad grew to about 6% of GDP in recent quarters (5.8% by the second quarter of 2026), following a comprehensive revision of the National Accounts by the Central Bureau of Statistics in August 2026. The bank estimates production abroad will add about 2.2 percentage points to GDP growth in 2026 and 2.4 percentage points in 2027, with uncertainty of at least one percentage point either way. The bank notes that other countries, including Ireland and Denmark, also use adjusted measures.
What does the forecast say about inflation?
The Bank of Israel expects annual inflation of 1.5% in 2026 and 2.1% in 2027, and 2.0% over the four quarters ending in the third quarter of 2027. The bank expects inflation to settle around the midpoint of its 1%–3% target range.
By comparison: U.S. PCE inflation is projected to be 3.7% and 2.3% in 2026 and 2027, respectively.
The bank revised its short-term inflation forecast down, citing recent CPI readings, revisions to several CPI components and the reduction in the fuel excise. Annual inflation was 1.6% in September 2026, according to the Monetary Committee's announcement.
Where does the Bank of Israel see interest rates heading?
The Bank's Research Department expects the Bank of Israel's interest rate to average 3.0% in the third quarter of 2027, compared with 3.25% today. The bank says this is similar to expectations priced in financial markets (3.1%) and to the average of private forecasters (3.1%, in a range of 2.8%–3.5%).
The bank adds that the rate forecast may be revised in line with developments in inflation, economic activity, financial markets, the geopolitical environment and fiscal policy.
What are the fiscal projections?
The bank forecasts a state budget deficit of 4.4% of GDP in 2026 and 4.6% in 2027, with debt-to-GDP at 68% in 2026 and 66.5% in 2027. It attributes the lower 2026 deficit forecast mainly to an upward revision of expected revenues.
The bank also publishes debt-to-GDP excluding production abroad, at 70.0% for 2026 and 70.5% for 2027, to compare debt with domestic economic activity.
Key facts at a glance
| Item | Detail | Source |
|---|---|---|
| Policy interest rate | Held at 3.25% on October 21, 2026 | Bank of Israel |
| GDP growth forecast (headline) | 5.6% in 2026, 7.5% in 2027 | Bank of Israel |
| GDP growth excl. production abroad | 3.4% in 2026, 5.1% in 2027 | Bank of Israel |
| Inflation forecast | 1.5% in 2026, 2.1% in 2027; 2.0% in 4 quarters to Q3 2027 | Bank of Israel |
| Latest annual inflation | 1.6% (September 2026) | Bank of Israel |
| Expected policy interest rate | 3.0% average in Q3 2027 (markets/private forecasters: 3.1%) | Bank of Israel |
| Budget deficit forecast | 4.4% of GDP in 2026, 4.6% in 2027 | Bank of Israel |
| Debt-to-GDP forecast | 68% in 2026, 66.5% in 2027 | Bank of Israel |
| Next rate decision | Monday, November 23, 2026 | Bank of Israel |
What happens next?
The Bank of Israel says the minutes of the monetary discussions before the October decision will be published on November 4, 2026, and the next interest rate decision will be published on Monday, November 23, 2026. The Research Department publishes its staff forecast quarterly. The bank describes the current period as having a high level of uncertainty, and its forecast is based on stated working assumptions that may change.
Frequently asked questions
What is the Bank of Israel's GDP growth forecast for 2026?
In its October 2026 staff forecast, the Bank of Israel projects headline GDP growth of 5.6% for 2026. Excluding Israeli firms' production abroad, which the bank says better reflects domestic activity, the forecast is 3.4%.
What inflation rate does the Bank of Israel expect?
The bank forecasts annual inflation of 1.5% in 2026 and 2.1% in 2027, within its 1%–3% target range. Annual inflation was 1.6% in September 2026.
What is the Bank of Israel interest rate now?
The Monetary Committee kept the rate at 3.25% on October 21, 2026. The Research Department expects it to average 3.0% in the third quarter of 2027.
What is "production abroad" in Israel's GDP?
According to the Bank of Israel, it is Israeli companies' production of goods sold overseas through subcontractors or affiliates abroad, without crossing Israel's borders. It reached about 6% of GDP in recent quarters.
When is the next Bank of Israel rate decision?
The next decision is scheduled for Monday, November 23, 2026, according to the bank.
Sources
- Bank of Israel: Research Department Staff Forecast, October 2026
- Bank of Israel: The Monetary Committee decides on October 21, 2026 to keep the interest rate unchanged at 3.25 percent
- Trading Economics
Important: This content is provided for educational and informational purposes only and does not constitute investment advice, a solicitation, or an offer to buy or sell any securities. Investing in international markets, including Israeli securities and defense-related sectors, involves material risks, including but not limited to market volatility, geopolitical risk, sector concentration risk, liquidity risk, currency risk, and the potential loss of principal. Past performance is not indicative of future results. Wise Money Israel does not guarantee any specific outcome, return, or profit. Any references to specific companies are for informational purposes only and should not be understood as a recommendation to buy, sell, or hold any security. Individuals should consult with a qualified financial advisor, tax professional, and/or legal counsel before making any investment decisions. Diversification does not necessarily ensure a profit or protect against loss. © 2026 Wise Money Israel. All rights reserved.
Data, quotes and statistics in this article come from third-party sources that Wise Money Israel has not independently verified; see the Sources section for links.
This article may contain forward-looking statements, forecasts, and opinions of third parties, which are inherently uncertain and may not materialize.
Wise Money Israel is an SEC registered investment adviser; registration with the SEC does not imply a certain level of skill or training.