Relief on the way for mortgages? The surprising forecast for the Bank of Israel interest rate
Leader Capital Markets estimates that inflation data and the strengthening of the shekel will allow for a significant policy move soon, despite a sharp drop in new apartment sales and an unusual decline in consumer confidence.
The weekly report from the investment house Leader Capital Markets, published on Sunday, presents a mixed picture of the Israeli economy. On one hand, inflation data, the strengthening of the shekel, an increase in state tax revenues, and the expansion of imports point to conditions that may allow for a relaxation of interest rate policy. On the other hand, consumer confidence has fallen to its lowest level since September 2025, against the backdrop of security and economic concerns.
One of the key figures in the review is the Consumer Price Index for July, which rose by only 0.3%. Consequently, the annual inflation rate fell to 1.5%, compared to 1.6% in the previous month. Core inflation, excluding energy, fruits, and vegetables, also fell to 1.4% and is approaching the lower limit of the Bank of Israel's target range of 1% to 3%.
At Leader, analysts estimate that the combination of moderate inflation and the strengthening of the shekel supports a reduction in the Bank of Israel's interest rate on September 1. The shekel has strengthened by 3.6% since the end of July against the currency basket and by 11% over the past year. The investment house estimates that an additional interest rate cut is also possible by the beginning of 2027.
An interesting trend was also recorded in the housing market. Sales of new apartments fell in June by 18% compared to May, but were still 24% higher than the 2025 average. Prices for purchasing apartments remained relatively stable, with an annual decrease of 1.5% recorded. Leader estimates that an interest rate cut and a ceasefire could increase demand for apartments again and exert renewed pressure on prices.
In the economic activity sector, industrial exports fell in July by 10% compared to June, but were still 10% higher than at the beginning of the year and 20% higher compared to July 2025. At the same time, imports of consumer goods rose by 13%, imports of raw materials increased by 8%, and imports of machinery rose by 9% — data that point to continued economic activity.
The state's budgetary situation also continues to show positive data. The deficit remained in July at 3.3% of GDP on an annual basis, while state tax revenues grew by 14.5% since the beginning of the year. However, Leader warns that part of the revenue growth may be one-time, partly due to large exit deals like WIZ. Therefore, even if the deficit in 2026 is expected to stand at about 4.6% of GDP, below the target, it is possible that fiscal adjustments will be required in the 2027 budget.
Conversely, public confidence does not reflect the improvement in financial data. The consumer confidence index fell in July to negative 22 points, the lowest level since September 2025. Expectations for the country's economic situation in the coming year also fell to negative 40 points. Leader attributes this, among other things, to the fear of renewed escalation with Iran and the fear of economic measures after the elections.
In the USA, a moderation in inflation was also recorded. The Consumer Price Index rose in July by 0.1%, while core inflation fell to 2.5% on an annual basis. The combination of moderating inflation and a certain weakness in American consumption may reduce the pressure on the Federal Reserve to tighten policy. In terms of Israel, this is another factor that may allow the Bank of Israel to move forward with an interest rate cut.
