Bank of Israel Decision in October?
I think the chance of another Bank of Israel cut in October is somewhat below one-third. Low inflation and an easing bias support a further reduction, but the close proximity to the election and the bank’s recent run of cuts make a pause slightly more likely than another cut.
Analysis
The strongest argument for a cut is that the macro backdrop still looks soft enough to justify additional easing. Inflation has been running below the middle of the target range, and the bank already responded with three straight cuts, which signals that policymakers see room to support activity without immediately reigniting price pressures. If the upcoming inflation data remain contained and the shekel does not weaken sharply, another 25 basis point move would be a natural continuation of the recent path toward a lower policy rate.
The main reason to expect a pause is that the Bank of Israel has already done a lot in a short period of time. After cutting in September, it may prefer to wait and see how the previous reductions filter through credit, demand, and the exchange rate before moving again. Central banks often avoid back-to-back cuts when they think they have already shifted policy meaningfully, especially if inflation is near target and the next meeting is unusually sensitive from a political perspective.
Election timing is an important headwind for a October cut. The meeting is scheduled just days before the Knesset elections, and that raises the likelihood that the bank will want to minimize any appearance of acting aggressively right before voters go to the polls. Even if the decision is still technically data-driven, the reputational cost of another immediate cut may be higher than the benefit of waiting one more meeting. That does not eliminate the chance of easing, but it does make a hold more plausible than the raw inflation numbers alone would suggest.
Market pricing at about 26% for Yes is reasonable, but I think it may still understate the chance of another cut slightly because inflation is clearly favorable and the bank has kept an easing bias. At the same time, the odds are not high enough for a cut to be the base case because the bank can credibly justify a pause and preserve optionality for November. Overall, this looks like a close call with a modest edge to No, and a Yes outcome should be viewed as a live but not dominant possibility.
Arguments
For
- Arguments for Yes: Inflation is below the target midpoint, so the bank has macro room to reduce rates further.
- Arguments for Yes: The September cut and prior easing cycle suggest policymakers are already leaning toward continued accommodation.
Against
- Arguments against Yes: The bank may prefer to pause after three consecutive cuts and assess the lagged impact of earlier easing.
- Arguments against Yes: The meeting is just before the election, which increases the incentive to avoid another immediate move.
Key drivers
- Inflation is low enough to give the central bank room to ease again without immediately threatening the target band.
- The October meeting is close to the election, which increases the appeal of waiting rather than cutting again right away.
Risk factors
- A softer-than-expected inflation print or weaker growth data could quickly push the bank toward another cut.
- If policymakers want to keep signaling an easing cycle, they may decide that waiting too long risks tightening financial conditions unnecessarily.
Scenarios
Best case
Inflation remains subdued, activity data soften, and the bank decides that the economy can absorb another quarter-point cut, making October another easing step.
Most likely
The Bank of Israel holds steady in October, treating September’s cut as sufficient for now while keeping the option open for another move later if inflation and activity stay weak.
Worst case
The bank pauses in October because it wants to wait for more data and avoid acting right before the election, leaving the rate unchanged.
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