Bank of Israel Decision in September?

The policy backdrop leans toward easing more than tightening. The Bank of Israel rate is currently 3.5%, inflation is running at 1.6% over the past 12 months, and the Bank’s own forward-looking picture suggests inflation near 1.8% over the next four quarters with policy rates trending lower over time. That combination means the inflation side of the mandate is not a major obstacle to another cut, and it leaves the committee room to reduce rates if it wants to keep the stance from staying restrictive for too long.

The main reason to doubt an immediate cut is timing and caution. The shekel strengthened meaningfully in the second quarter, which helps disinflation, but more recent weakening shows exchange-rate conditions are still unsettled. A rate cut could add pressure on the currency if investors read it as a faster easing cycle, and central banks often prefer to see a few clean months of stable data before moving again when they are already in an easing phase.

On balance, the market’s 22.5% implied probability looks a little low relative to the dovish macro backdrop, but not dramatically so because a hold is still the default outcome in a volatile environment. The most likely path is that the Bank keeps the rate unchanged in September while signaling that further easing remains possible later, which makes a cut plausible but still distinctly less likely than a pause.