Israel’s long-anticipated interest rate cut, a 0.25 percentage-point reduction from 4.50% to 4.25%, has exposed a sharp divide between political messaging and economic reality. While the finance minister presented the decision as evidence that the country is entering a period of renewed growth, economists and opposition lawmakers argue that most Israelis will barely feel the change and warn that the move could introduce new pressures into an already strained economy.
Finance Minister Bezalel Smotrich was quick to frame the Bank of Israel’s move as confirmation of national momentum. “I promised that victory would bring security, and security would bring prosperity and economic growth,” he said. “Today’s rate cut joins a series of clear steps and clear signs—Israel is on the path to tremendous economic growth.” Addressing his faction, he added that Israel is now “less challenged by inflation and more challenged by growth,” promising that government measures would “inject a great deal of money into the market” and give Israelis “some air to breathe after two difficult years.”
I promised that victory would bring security, and security would bring prosperity and economic growth. Today’s rate cut joins a series of clear steps and clear signs—Israel is on the path to tremendous economic growth.
But Prof. Dan Ben-David, who heads the Shoresh Institution for Socioeconomic Research and is an economist in Tel Aviv University’s Department of Public Policy, urged the public to temper expectations. Speaking with The Media Line, he cautioned that the move’s real-world impact will be extremely limited. “This is a minor step, and it’s a first step. I don’t think anybody is really going to feel anything,” he said. Even for mortgage holders, the relief will be modest. “There’s a direct effect and an indirect effect,” he explained. While monthly payments may fall slightly, lower rates also spur demand. “If it’s now going to be cheaper to buy a home and it induces an increase in demand, then the prices of homes will be higher… it’s not clear that you’re getting from the situation as an individual homeowner.”
This is a minor step, and it’s a first step. I don’t think anybody is really going to feel anything.
Beyond housing, Ben-David warned that the cut may carry unintended consequences for exporters and for competition inside the Israeli market. A stronger shekel, already evident in recent months, could accelerate. “When the shekel is strong, it makes Israeli goods abroad more expensive… this reduces the demand for them and hurts exporters.” He added that a stronger currency does not automatically translate into lower prices at home. “Even if imports become cheaper, the question is whether the importers will pass that along to the consumers. They aren’t really doing that in the past.”
Give the gift of hope
We practice what we preach:
accurate, fearless journalism. But we can't do it alone.
- On the ground in Gaza, Syria, Israel, Egypt, Pakistan, and more
- Our program trained more than 100 journalists
- Calling out fake news and reporting real facts
- On the ground in Gaza, Syria, Israel, Egypt, Pakistan, and more
- Our program trained more than 100 journalists
- Calling out fake news and reporting real facts
Join us.
Support The Media Line. Save democracy.
His criticism extended to the government’s broader handling of the economy. “Israel isn’t being handled properly,” he said. “We have a messianic finance minister who cares nothing about the economy and thinks that it’s all in God’s hands.” According to him, repeated confrontations between Smotrich and senior professional staff are undermining Israel’s credibility. “The government’s handling of the situation is abysmal. This is mismanagement at the highest possible levels.”
Yesh Atid lawmaker Vladimir Beliak, a member of the Knesset’s Economic Affairs Committee, offered a parallel critique from the parliamentary side. He welcomed the decision itself, calling it “the right move,” but stressed that its timing was only possible because fighting ended under the ceasefire and hostage deal. “It’s the first time in nearly two years that the rate comes down,” he told The Media Line. “This was only possible thanks to the hostage deal and the ceasefire, which changed the business atmosphere and eased inflation. It could have happened earlier if the government had reached a deal sooner.”
Beliak dismissed the finance minister’s efforts to portray the cut as a government achievement. “The Bank of Israel is independent. This decision has nothing to do with the finance minister,” he said. “If it depended on him, we would still be fighting in Gaza—and not only would the rate not be going down, we would be very far from any reduction.” Political attempts to claim credit, he added, are “a bit ridiculous, but that is politics.”
Israel isn’t being handled properly. We have a messianic finance minister who cares nothing about the economy and thinks that it’s all in God’s hands.
Like Ben-David, the opposition lawmaker emphasized that most families will not notice any immediate change. “I’m not sure people will feel it,” he said. “It’s like cutting VAT by one percent—you don’t really notice it. If future cuts add up to half a percent or three-quarters, then you feel it in mortgages and business loans. But right now, it’s just a signal of a changing trend, no more.”
He agreed that a stronger shekel presents risks but argued that the central bank acted cautiously. “The markets were expecting even a half-percent cut,” he said. “A larger step would not have been conservative or necessarily correct. The quarter-point reduction is proportional and responsible.”
On whether Israel might eventually return to the near-zero interest environment of the previous decade, Beliak was unequivocal. “We were living in a completely different world. We are not going back there, not to zero, not to negative rates. But we can reach lower numbers than today, just not like in the previous decade.”
He also highlighted the gap between economic rhetoric and on-the-ground reality, particularly in the country’s North. After visiting the Western Galilee, he described slow reconstruction, struggling businesses, and missed opportunities. He recalled a meeting at the Bar-Lev high-tech park, where executives presented a plan to anchor thousands of engineers in the region. “They told me that a grant of 50 million shekels for two anchor companies would create the boost they need,” he said. “And suddenly I remembered—the state spent roughly 100 million shekels on the Meron pilgrimage this year. It’s all about priorities.”
This was only possible thanks to the hostage deal and the ceasefire, which changed the business atmosphere and eased inflation. It could have happened earlier if the government had reached a deal sooner.
According to Beliak, reconstruction is possible without increasing the burden on the middle class, but not under current political priorities. “The order of priorities is completely wrong,” he said. “Money goes elsewhere, and that’s why Kiryat Shmona (Israel’s northernmost city, located along the Lebanese border) looks the way it does after a year, and why businesses in the Western Galilee can’t recruit workers. I don’t see real recovery under this government.”
The 0.25% rate cut stands as both a policy shift and a political symbol. To Finance Minister Smotrich, it represents momentum; to economists, it is a cautious gesture unlikely to ease household pressure in the near term, and for lawmakers like Beliak, it is a reminder that structural challenges, from competition to reconstruction, will not be solved through monetary policy alone.