Interest Rates Cut to 1% in Surprise Move


The Bank of Israel Monetary Committee cut the interest rate for October by 25 basis points to 1 percent, a decision that took most analysts by surprise, Globes reported on Sunday.

The Bank of Israel last cut the interest rate, to 1.25 percent, in May, when Prof. Stanley Fischer was still governor, part of a policy of steadily lowering the interest rate since September 2011, when it was 3.25 percent.

The Bank cited several reasons for the cut: the inflation rate, which is below the midpoint of the inflation target range; the slow growth rate, warning of the decline in exports and slowing private consumption; the expected slowing in government spending in 2014, along with the tax hikes that will come into effect; the slowing global economic recovery; and the Federal Reserve Board’s decision to continue its quantitative easing program at the current volume, as well as accommodative monetary policies by the European Central Bank, the Bank of England, and the Bank of Japan.

The Bank of Israel also noted that reduced geopolitical tension and accommodative monetary policy worldwide are again driving the shekel upward against other currencies. The shekel has appreciated by 1 percent since the previous monetary discussion, it noted, and by 6.6 percent for the year to date.