Monetary Committee of the Bank of Israel

The Monetary Committee of the Bank of Israel is the statutory decision-making body responsible for Israel’s monetary policy. Established under the Bank of Israel Law, 5770–2010, it sets policy to achieve the central bank’s objectives, including price stability, and decides on tools such as the short-term policy interest rate.^[1]

Legal basis and institutional role

The Monetary Committee was created by the Bank of Israel Law, 5770–2010, the modern statute governing Israel’s central bank. The law replaced the earlier 1954 framework and took effect in June 2010 after being passed by the Knesset in March 2010.^[2] The reform changed monetary-policy governance from a governor-centered model to a committee model, bringing Israel closer to the institutional arrangements used by many other central banks.

Within the Bank of Israel, the Monetary Committee is the body that determines monetary policy and the actions needed to meet the Bank’s objectives. The Bank of Israel states that the committee’s functions are to set policy, including monetary policy, to achieve the Bank’s objectives; monitor execution of that policy; decide on actions under the law that the Bank must take to achieve its objectives; and perform other functions assigned to it by the law.^[1]

The Bank of Israel’s statutory objectives frame the committee’s work. The central objective is maintaining price stability. The law also requires the Bank to support other government economic-policy objectives, particularly growth, employment and the narrowing of social gaps, and to support financial stability, so long as these do not impair the attainment of price stability over time.^[3] In practice, this hierarchy means the Monetary Committee assesses policy primarily through the lens of inflation and inflation expectations, while also considering real economic activity, the labor market, financial markets, fiscal conditions and the exchange rate.

Membership and composition

The Monetary Committee has six members. According to the Bank of Israel, its composition is the Governor, who serves as chairperson; the Deputy Governor; an additional Bank employee appointed by the Governor; and three representatives from among the public.^[1] The Bank of Israel describes the decision-making reform as one in which decisions are made by a committee of six members: three Bank representatives and three public representatives.^[3]

This composition is designed to combine internal central-bank expertise with outside professional judgment. The internal members bring direct access to the Bank’s research, market operations and supervisory information. The public representatives are intended to add independent perspectives and reduce the concentration of monetary-policy authority in a single official. Public representatives are appointed by the government under the statutory framework described by the Bank of Israel in its notices on committee appointments.^[4]

As of the Bank of Israel’s committee page crawled in September 2026, named members shown included Governor Prof. Amir Yaron, Deputy Governor Andrew Abir, Dr. Adi Brender as Director of the Research Department, and public member Prof. Ori Heffetz; the Hebrew version of the same institutional page also listed Prof. Naomi Feldman as a member.^[1][5] Membership can change through appointments, term expirations and vacancies, so current rosters should be verified against the Bank of Israel’s official committee page.

The Governor’s role is significant but not exclusive. The Governor chairs the committee and, under the Bank of Israel’s description of the 2010 law, has a second vote in the case of a tie.^[3] This gives the Governor a tie-breaking role while retaining collective deliberation as the ordinary method of decision-making.

Policy mandate

The Monetary Committee’s mandate is inseparable from the objectives of the Bank of Israel. The Bank states that its main monetary-policy function is to protect the value of the local currency and maintain price stability.^[6] Price stability is expressed through an inflation target set by the government in consultation with the Governor of the Bank of Israel.^[7]

The Bank of Israel explains that it conducts interest-rate policy in order to achieve the government’s inflation target. It also lists several monetary tools used for this purpose, including monetary loans to banking corporations, monetary deposits of banking corporations with the Bank, a credit window, a deposit window, MAKAM issues, open-market operations and repos.^[6] While the short-term interest rate is the most visible tool, the committee’s remit is broader than the announcement of rate decisions alone.

The committee’s policy decisions are forward-looking. Monetary policy affects inflation and economic activity with lags, so decisions normally incorporate forecasts, risk assessments and scenarios. The Bank’s Research Department prepares a macroeconomic forecast covering variables such as GDP, employment, inflation, the interest rate and wages; the forecast is discussed by the Monetary Committee and is published with interest-rate decisions in January, April, July and October.^[6] These forecasts are not binding decisions, but they form part of the information set used by the committee.

Interest-rate decisions

The Bank of Israel’s short-term policy interest rate is the committee’s most closely watched decision. The Bank describes the short-term interest rate as the main policy instrument used to achieve its objectives, and states that it is set by a Monetary Committee headed by the Governor.^[7] The rate affects banks’ funding costs, money-market rates, deposit and lending rates, exchange-rate conditions, asset prices, inflation expectations and, ultimately, household and business decisions.

The committee decides whether to raise, lower or leave unchanged the policy rate at scheduled monetary-policy meetings. Under the legal framework summarized by the Bank, decisions regarding the interest rate and monetary policy in general are made by the Monetary Committee rather than solely by the Governor.^[3] The law also provides that an interest-rate decision applies for a stated period, after which the committee decides whether to change the rate or leave it in place for a further period; the committee may also change the rate within the previously stated period if needed.^[8]

The frequency and communication of rate decisions have evolved over time. The Bank of Israel publishes interest-rate decisions, minutes or summaries of discussions, monetary-policy reports and other documents connected to committee deliberations.^[1][9] These communications help markets and the public understand how the committee interprets inflation data, economic activity, fiscal policy, exchange-rate movements and financial-market conditions.

Transparency and accountability

Transparency is a central feature of the post-2010 framework. The Bank of Israel states that the law established mechanisms of public and internal control to ensure that central-bank independence is accompanied by accountability and transparency toward the executive branch, legislature and public.^[3] The committee’s publication practices are part of this framework.

The Bank publishes summaries of discussions that lead to monetary-policy decisions. Its minutes page states that, under Section 19(a) of the Bank of Israel Law, the Monetary Committee publishes summaries of its discussions whose outcomes are monetary-policy decisions, and that these summaries are published within two weeks of the policy decision.^[9] The stated aim is to increase transparency and allow the public, the Knesset and the government to deepen their understanding of interest-rate policy.^[9]

The Bank also publishes monetary-policy reports. The Monetary Policy Report is a regular document that reviews policy, inflation developments and the economic environment. Bank publications cite Section 55(a) of the Bank of Israel Law as establishing publication of the monetary-policy report, which is submitted to the government and the Knesset Finance Committee twice a year.^[10] These reports provide a broader record than individual rate announcements, often explaining how the committee interpreted economic developments over a half-year period.

Transparency does not mean that every internal model, staff assessment or individual view is disclosed in full. As with other central banks, the committee balances openness with the need to preserve effective deliberation and avoid destabilizing markets through incomplete or premature communication. Still, published rate announcements, discussion summaries and reports form a public trail of the committee’s reasoning.

Relationship with government and the Knesset

The Bank of Israel is an independent central bank, but its independence operates within a statutory public framework. The Bank of Israel Law clarifies that the Bank has independence in choosing its actions and exercising its powers, while mechanisms for control and accountability remain in place.^[3] The government sets the price-stability target in consultation with the Governor, while the Monetary Committee chooses the policy path intended to achieve it.^[7]

The committee’s relationship with fiscal authorities is therefore indirect but important. Fiscal policy, public debt, government spending and taxation affect aggregate demand, risk premia, exchange rates and inflation expectations. The committee considers these factors when determining monetary policy, but it does not set the state budget or tax policy. Those matters fall under the government and the Knesset.

The committee also has reporting responsibilities beyond the policy rate. The Bank of Israel’s page on foreign-exchange reserves states that Section 56 of the law requires the Monetary Committee to submit to the government and the Knesset Finance Committee a report on the principles for determining the proper long-run level of foreign-exchange reserves and guidelines for the Bank’s investment policy regarding the reserves in the previous year.^[11] This reflects the committee’s role in broader monetary and reserve-management policy, not only short-term rate setting.

Monetary tools and transmission

The committee’s decisions are transmitted through Israel’s financial system. A change in the policy rate can influence commercial-bank lending and deposit rates, yields on government and corporate securities, the shekel exchange rate, housing-finance costs, household consumption, business investment and inflation expectations. Because the Bank of Israel is the central bank and banker to the banking system, its operational tools affect the supply of liquidity and the short-term money-market rate.

The Bank lists several instruments used in monetary policy: monetary loans to banking corporations, monetary deposits from banks at the Bank of Israel, the credit and deposit windows, MAKAM issues, open-market operations and repos.^[6] These instruments help align market conditions with the policy stance chosen by the committee. The committee may also decide on actions related to foreign-exchange-market intervention, foreign-reserve management, reserve requirements and other statutory tools where the law assigns such powers.^[8]

Reserve requirements are one example of a tool with both monetary and banking-system relevance. The Bank of Israel states that Section 38 of the law subjects banking corporations to a reserve requirement, requiring them to hold liquid assets as reserves according to liquidity directives.^[12] Although the policy interest rate is the headline instrument, liquidity regulations and market operations can affect short-term funding conditions.

Foreign-exchange reserves and market functioning

Israel is a small open economy with a floating exchange rate, and exchange-rate developments are an important part of the committee’s information set. The shekel exchange rate affects import prices, export competitiveness, inflation expectations and financial conditions. The Bank of Israel’s statutory functions include holding and managing the State’s foreign-currency reserves.^[11]

The Monetary Committee has a role in policies connected to reserves and foreign-exchange-market intervention. A legal summary of Section 15 of the Bank of Israel Law lists, among the committee’s additional statutory matters, management of foreign-exchange reserves and intervention in the foreign-exchange market.^[8] The International Monetary Fund has likewise described monetary-policy decisions, foreign-reserve management decisions and foreign-exchange-market intervention decisions as being taken by the Monetary Committee under the Bank of Israel Law.^[13]

Foreign-exchange decisions can be especially relevant during periods of market stress, sharp exchange-rate movements or changes in capital flows. However, the committee’s legal framework places these decisions within the broader objectives of price stability, financial stability and orderly economic activity.

Comparison with other central-bank committees

The Monetary Committee is comparable in broad function to monetary-policy committees at other central banks, such as the Federal Open Market Committee of the Federal Reserve System or the Reserve Bank Board in Australia. Like those bodies, it uses policy instruments to influence inflation and economic conditions. Unlike the Federal Reserve’s federal structure, however, Israel’s committee is located within a unitary national central bank.

The 2010 reform was important because it changed the governance of Israeli monetary policy from a model centered on the Governor to a committee system with external members. This structure can broaden debate, diversify expertise and increase institutional continuity. It also makes published minutes and reports more meaningful, because they reflect a deliberative body rather than a single decision-maker.

Significance in Israel’s financial system

The Monetary Committee is one of the most important public economic-policy bodies in Israel. Its decisions influence banks such as Bank Hapoalim, Bank Leumi, Israel Discount Bank, Mizrahi-Tefahot Bank and First International Bank of Israel through funding conditions, loan pricing and deposit rates. Its policy decisions also affect bond yields, equity-market valuations on the Tel Aviv Stock Exchange, pension and savings returns, and household financial conditions.

The committee is not a securities regulator, bank supervisor or fiscal authority. Securities-market regulation is handled by the Israel Securities Authority, while fiscal policy is led by the Ministry of Finance (Israel) and the elected government. The Monetary Committee’s distinct role is to set monetary policy and decide on central-bank actions under the Bank of Israel Law.

Because monetary policy affects nearly all financial contracts denominated in shekels, the committee’s decisions are followed by banks, institutional investors, households, businesses, economists and foreign investors. Its communications help shape expectations about inflation and future policy, making the committee not only a decision-making body but also a central source of economic information in Israel.