BOI Cuts Interest Rate Again

The Monetary Committee announced that the interest rate for June will be cut by 25 basis points to 1.25%, just two weeks after it cut the interest rate by the same amount in an extraordinary mid-month rate cut.

The BOI gave the same reasons for the cut as it did for the mid-month interest rate cut: to narrow the gaps between Israel’s interest rate and the rates in major economies worldwide, in order to curb appreciation of the shekel.

The move was not entirely unexpected. A Bloomberg poll of 21 analysts over the weekend found that nine predicted the rate cut, while 12 said they thought the Bank would keep the rate unchanged.

The Bank of Israel also cited the accommodative monetary policy of major central banks in other countries over the past two months.

“The ECB reduced its interest rate to a record low of 0.5% and its president stated that he does not rule out further interest rate reductions. Quantitative easing plans continue in the U.S., and the Bank of Japan announced at the beginning of April that it would double the rate of its bond purchase plan. The expansionary policy of central banks in major advanced economies is expected to continue, according to their announcements, in the coming year as well.”

It added that macroeconomic indicators for Israel indicate continued moderate growth in the first quarter, but a mixed trend in April. It also noted mixed macroeconomic data that were published for major economies, and that the IMF cut its 2013 growth forecast for most major economies.

The Bank of Israel also noted that home prices rose by 10.5% in the 12 months through March, and that the government’s new tax measures in the housing market are expected to moderate demand.

This article appeared in print on page 6 of the May 28th, 2013 edition of Hamodia.