The Bank of Israel decided to lower interest rates to 3.75% on May 25, signaling cooling inflation, a strong shekel and optimism at a deal to end the war with Iran. The central bank cut borrowing costs from 4% to 3.75% in its second rate cut of the year. 

“There is still significant geopolitical uncertainty, both domestically and globally,” the central bank said in a statement, per the Times of Israel. Inflation remains at the midpoint of the target, with annual inflation in April steady at 1.9%, within the government’s target of 1% and 3%. The shekel has hit a 33-year high, trading at around 2.89 per dollar.

The nation’s economy saw little growth at the start of the year with the conflict in Iran only slowing the economy, but there is hope for recovery. Gross domestic product (GDP) contracted at an annualized rate of 3.3% in the first quarter of 2026, according to Reuters, a less drastic reading than the 4% drop forecasted.

Last year, the economy grew 2.9% with expectations of a rebound in 2026 after an October ceasefire ended major fighting in the war in Gaza. When the United States and Israel launched strikes against Iran in February, business activity and consumer spending dropped, weighing on the economy.

“The Israeli economy began ​the year with strong momentum, with rapid growth in the first two months,” said Ofer Klein, head of economics and research at Harel Insurance and Finance, per Reuters. “…The lifting of most restrictions in April and the improvement in economic activity ​since then … indicate a relatively quick return to positive growth in the current quarter.” 

In the first quarter, consumer spending dropped 4.7%, exports fell 3.7% and government spending declined 4.8%, according to Reuters. Investment in fixed assets increased 12.6%. On a per capita basis the economy shrank 4.5% in the first quarter.

According to FCIB’s Credit and Collections Survey, a quarter of the credit managers with customers in Israel are not extending them credit, while three-quarters offer 1-30-day terms. Those extending credit find that customers are six days beyond terms on average, with delays largely attributed to billing disputes (67%), cash flow issues (67%) and customer payment policy (67%). 

“Know your customer,” one respondent advised. “Use verification tools available to you, including social media, to mitigate the chance of fraud.”

“We have sold to Israeli customers on cash-in-advance terms since October 2023 and have encountered no payment issues,” another respondent wrote.

“Political events can disrupt trade,” another respondent said. “Consider credit insurance.”