The Bank of Israel cut its policy rate by 25 basis points to 3.5% in July 2026, its second reduction of the year, following inflation readings that have moderated into the lower half of the 1-3% target range. June 2026 CPI came in at 1.6% year-over-year, the softest print since 2021, with easing pressures visible in food and transport components. Staff forecasts project inflation near 1.8% through 2027 alongside further gradual easing toward 3%, yet the two-month interval since the July move and the absence of fresh high-frequency data pointing to overheating or renewed price risks leave traders assigning an overwhelming probability to no change at the early-September meeting. A cut remains possible only if upcoming CPI or labor-market releases show additional disinflation, while any upward surprise in activity or energy prices would reinforce the hold.