PREVIEW-Bank of Israel seen holding interest rates, keeping easing bias
* Rates seen on hold for second straight month
* First meeting post-Fischer, no successor likely before October
* MPC still seen cutting rates in coming months if needed
JERUSALEM, July 25 (Reuters) - Israel's central bank is expected to leave short-term interest rates unchanged on Monday at its first policy meeting without long-time governor Stanley Fischer, but keep its easing bias amid softening economic growth.
Fischer stepped down last month after eight years as head of the bank, and with the nomination of Jacob Frenkel, a former governor, running into trouble, the Bank of Israel is likely to be without a chief until October at least, analysts say.
However, they do not expect that to stop the Monetary Policy Committee (MPC), under deputy governor and acting head Karnit Flug, from cutting rates again if needed to shore up the economy.
The MPC voted unanimously to keep the benchmark interest rate at 1.25 percent on June 24, Fischer's final meeting, saying two rate cuts in May would help to temper weakening growth.
While central banks in other emerging markets such as India, Indonesia and Turkey have recently raised interest rates to support their currencies, Israel's shekel is strong and could be a reason to cut rates again later this year.
The currency has avoided the rout in its emerging peers since the U.S. Federal Reserve signalled it could scale back stimulus, boosting the dollar, partly because Israel's current account is expected to get a boost from the start of natural gas production in March and because Frenkel is known to oppose very low interest rates.
Frenkel's nomination has been derailed since the Justice Ministry said last week that the attorney general would investigate a suspected shoplifting incident in Hong Kong involving Frenkel in 2006. Frankel, who was central bank governor in the 1990s, has called the incident a "misunderstanding."
Israel's economy grew by an annualised 2.9 percent in the first quarter but data suggests slower growth in the second quarter. The economy is forecast to expand 2.8 percent this year, excluding the contribution of natural gas production, compared with a 3.2 percent expansion last year.
Annual inflation, fueled by a rise in value-added tax, jumped to 2 percent in June from 0.9 percent in May, but remained within a government target of 1-3 percent a year.
"The risks are skewed to the downside," said Daniel Hewitt, an emerging markets economist at Barclays Capital, who currently foresees no rate changes through the end of 2013. "If global growth weakens further and the shekel appreciation pressures continue, another rate cut is possible this year."
The two rate cuts in May were partly aimed at weakening the shekel, which had reached a 21-month peak versus the dollar at 3.57. The central bank also said it would step up foreign exchange purchases to stem the shekel's gains.
But after a brief depreciation, the currency has moved back to 3.59 per dollar.
Tevfik Aksoy, an economist at Morgan Stanley, said along with the ongoing volatility in global markets, there was no immediate need for the Bank of Israel to alter rates.
"We think the easing bias will remain in place," he said, but added that he has pencilled in one more rate cut for the coming months.
The Bank of Israel's rate decision is slated for 5.30 pm (1430 GMT) on Monday.
(Editing by Susan Fenton)