By Steven Scheer
JERUSALEM, Aug 31 (Reuters) - A small majority of economists believe the Bank of Israel is likely to hold off on a third consecutive short-term interest rate cut on Tuesday, but the rest think it will probably lower rates again, a Reuters poll found.
The monetary policy committee will decide on rates on Tuesday at 4 p.m. (1300 GMT).
In the Reuters poll of 14 economists, eight expect no move while six project another 25-basis-point cut to 3.25%.
The MPC cut the benchmark interest rate ILINR=ECI by 25 basis points at its two previous meetings in May and July. It now stands at 3.5% — its lowest level since late 2022. The rate peaked at 4.75% in 2023.
Most economists believe a rate cut is warranted due to a low annual inflation rate of 1.5%, which is well within an official 1-3% target, and a strong shekel ILS= that helps to contain price pressures. Inflation is expected to hold steady over the next year, based on bond market yields.
The shekel has appreciated 6% against the dollar so far in 2026 to stand at a rate of 2.99.
Financial markets are pricing in about a 50% chance of a cut, economists say.
"What makes us argue for a decision to hold rates, however, is the lack of urgency to act," according to Citi economist Michel Nies.
Harel Insurance and Finance's head of economics and research Ofer Klein added that after two straight cuts, the central bank will likely temporarily pause due to a tight labour market, tighter monetary policies globally, stronger economic growth, and geopolitical and budgetary risks.
Israel's economy bounced back in the second quarter with a 15.4% annualised growth spurt after a 2.2% contraction the prior three months.
JPMorgan economist Anatoliy Shal noted that stable housing pricing supports further easing even as global rates might be moving in the opposite direction.
"Outside of the tech bubble, it does not seem like the economy is doing particularly well – a stronger shekel could be one reason behind this," Shal said. "Growth fundamentals don’t appear to speak against rate cuts."
Economists generally agree that no matter what the outcome on Tuesday, the Bank of Israel is still poised for at least two more rate cuts in the current cycle.
Bank of Israel Governor Amir Yaron told Reuters on July 6, after that month's decision to cut rates, that he saw a key rate of 3% in the coming year "as long as there are no unexpected changes in the inflation environment."
The rates decision was initially slated for August 31 but pushed back a day due to logistics surrounding Yaron's return from the Jackson Hole symposium.
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(Reporting by Steven Scheer; Editing by Edwina Gibbs)