Einat Meir, chief economist at Israel Discount Bank, said the Israeli shekel was one of the world’s strongest currencies in 2025, and is expected to maintain its strength in 2026.
In a special interview with Anna Ahronheim, Jerusalem Post Business and Innovation editor, Meir said that the strength of the Israeli shekel is due to a combination of several factors.
“The main reason for its strength is the fact that Israel has a surplus in its balance of payments,” she said. “It exports more than it imports, meaning that it receives more dollars than it pays out, which makes the country stronger and more stable.” Meir added that increased foreign investment in Israel, particularly in the tech sector, has brought dollars into the country and strengthened the shekel.
In addition, she noted that Israeli institutional investors are allocating substantial sums to overseas markets, such as the US stock market, the bond market, and other investments in foreign markets though these investments still represent only a limited share of their overall portfolios. “They purchase dollars, but they want to lower their exposure to volatility of the dollar, so once the stock markets abroad – primarily the NASDAQ and the S&P – rise, they increase their hedging activity, thereby strengthening the shekel. The shekel is positively correlated to the NASDAQ and the S&P, and when they rise, as they did in 2025, the shekel becomes stronger. All of these factors together make the shekel one of the strongest currencies in the world.”
Israel’s unemployment rate, which is approximately 3.1%, is relatively low, said Meir, especially in light of the fact that the country has endured over two years of war. “Once unemployment is low, and wages are growing, people have more money to spend, so private consumption increases. We also see higher investment in the local economy. Exports have also increased. All of this supports the overall growth of the economy.” Meir added that economic growth for 2026 is expected to be between 4.7% and 5%.
Commenting on the recent Bank of Israel decision to cut interest rates for the second time since the October cease-fire with Hamas, Meir said that more people have returned to the workforce since the cease-fire and that inflation has moderated, thereby allowing the Bank to cut rates. “The rate cut is very good for households and businesses, and people will pay lower interest rates,” she said, though she suggested that it may not lead to higher growth.
Although other countries lowered their interest rates faster than Israel did, Meir pointed out that most of them had not experienced war and conflict. “The Bank of Israel waited until the risk premium was falling,” she said.
The Federal Reserve in the United States lowered interest rates three times in the past year and is expected to reduce them twice more in 2026, while the European Central Bank (ECB) cut its rates to 2% and will leave them unchanged in the next year. She added that the Bank of Israel is expected to cut rates twice more this year. “By the end of 2026,” she said, “the interest rate in the US is supposed to be about 3%, while the rate in Israel should be 3.25%.”
Meir said that future Israeli normalization with other countries would attract numerous foreign investors. “We have seen that previous agreements, such as the Abraham Accords, attracted a lot of dealings with the United Arab Emirates. Normalization with additional countries would increase investment not only from Arab countries but also from other countries, and would open huge markets for Israeli exports, in areas such as hi-tech, agrotech, fintech, cyber, and AI.
Discussing the 2026 financial forecast, Meir said the global economy is very stable. “In recent years, the world has experienced COVID and trade wars, and the US conflict with Venezuela, and while the geo-economic risk is much higher, the economy is stable overall. The US will continue to lead the world with strong private consumption, and while local demand in China has declined, it also continues to export a great deal.”
Written in collaboration with Israel Discount Bank