The rate is down to 3.25%: what that does to your overdraft and your business loan
On 1 September 2026 the Bank of Israel's monetary committee cut the rate by a quarter of a point, from 3.5% to 3.25%. That is the third consecutive cut and the fifth in under a year. The prime rate, which is derived from the Bank of Israel rate, fell to 4.75%, and the change took effect on 3 September.
The coverage was all about mortgages. For a small business the effect sits somewhere else.
What falls without you doing anything
Prime is the pricing base for almost all short-term business credit in Israel. The overdraft facility on a business account is priced as prime plus a margin the bank sets with each customer separately. The same structure applies to a prime-track loan and to loans from the state-guaranteed fund. When prime drops a quarter of a point, your margin stays where it is and the rate you actually pay drops by that same quarter of a point, automatically, from the effective date.
The amounts are small and worth seeing at their real size. A quarter of a point on a steady 80,000 shekel overdraft is about 200 shekels a year. On a 300,000 shekel prime-track loan it is roughly 750 shekels a year. This is the fifth cut in under a year, and the reductions since November 2025 add up to something you notice in the account.
The other side of that coin applies to a business holding cash. A short bank deposit is priced around prime too, and the return on it now falls by the same amount.
What does not move
A fixed-rate loan stays at exactly the rate it was signed at. The cut does not touch it, not today and not at the next one. Credit that is not linked to prime does not change on its own.
And your margin over prime never falls by itself. Prime is identical at every bank and published on the same day for everyone. The margin is negotiated, and it is the difference between two businesses of the same size paying different rates on the same facility. A business that has not looked at its margin in two years is probably paying for habit rather than for its own risk.
Why the committee cut
Inflation. Over the 12 months ending July 2026 the index rose 1.5%, the lowest level since May 2021 and below the midpoint of the 1% to 3% target range. The June index was flat and July rose 0.3%. Excluding energy and fresh produce, inflation was also 1.5%, and for non-tradable goods it was 2.5%. The shekel stayed strong, which lowers the price of imported raw materials and goods.
Growth did not stop the cut. GDP in the second quarter of 2026 grew 3.8% in annualised terms on the adjusted measure, meaning net of Israeli companies operating abroad. The labour market is tight: the employment rate for ages 25 to 64 was 78.9%, broad unemployment 3.2%, and nominal wages rose 6.2% over April to June.
The committee noted that uncertainty remains high given the geopolitical situation, and that Israel's risk premium sits at a level similar to before 7 October 2023. The market was split down the middle: of 18 economists asked before the decision, nine expected a cut and the rest expected no change. Exporters had pushed for a larger cut because of the shekel's appreciation, and the finance minister said he would have preferred a bigger reduction.
What could reverse the direction
Fuel. The price of 95 octane reached 8.25 shekels per litre, the highest level recorded, and it feeds straight into the index. A business that drives a lot feels that twice: in the cost of the driving itself, and in the pressure it puts on the index and through it on the next rate decisions.
What to do with this
Anyone weighing a loan right now faces a real choice between a prime track and a fixed rate. The rate path the committee itself signals reaches 3% over the coming year, meaning another cut if nothing unusual happens. A prime track would capture it. A fixed rate locks today's price and protects against the opposite direction.
One last point that is easy to miss: interest on a loan taken for business purposes is a deductible expense. A lower rate means a smaller deduction on the return, but the saving on the payment is larger than the deduction you lose, so the net is still in your favour.