Bank of Israel to pause rate cuts ahead of October 27 election

Israel's central bank is expected to hold the line on short-term ​interest rates on Wednesday after three successive reductions, as policymakers will likely pause ahead of next week's election ‌despite stable inflation, a Reuters poll showed, Report informs via Reuters.

After cuts in May, July and September, all 15 economists polled expect the Bank of Israel to keep its benchmark interest rate at a four-year low of 3.25% when the decision is announced on Wednesday at 4 p.m. (13:00 GMT).

There have ​been five 25 basis point rate cuts in the current easing cycle, which began last November as inflation ​has moved to well within the government's 1%-3% inflation target range. At least one more reduction ⁠to 3% is widely expected - a divergence from a broader global trend of tighter monetary policy.

Economists believe a ​rate cut on Wednesday could benefit Prime Minister Benjamin Netanyahu in the October 27 election. Opinion polls show both Netanyahu's ​bloc and the main Jewish-led opposition parties, headed by former military chief Gadi Eisenkot, falling short of securing a majority.

Barclays said political uncertainty would keep the central bank on hold this decision, while IBI Chief Economist Rafi Gozlan said markets fear that a Netanyahu-led bloc would raise Israel's ​risk premium "primarily due to concerns over adverse implications for both foreign relations and the security situation, as well as ​the standing of domestic institutions."

Israel's inflation rate edged up to a less-than-forecast 1.6% in September from a five-year low of 1.5% in August. ‌At ⁠the same time, the economy bounced back sharply in the second quarter with 15.4% annualised growth while the shekel has weakened to a nine-month low versus the US dollar.