The Bank of Israel Monetary Committee surprised the markets on Monday as it announced a cut in the interest rate for March by 25 basis points from 1% to 0.75%.
The Bank said the decision was prompted by the unexpectedly low Consumer Price Index (CPI) for January, the slowing growth rate, the depreciation of the shekel, and disappointing U.S. growth figures.
The Bank of Israel also noted that the CPI rose by 1.4% in the 12 months through January, below the midpoint of the government’s 1-3% price stability target and that 12-month inflation expectations are also below the midpoint. GDP grew by an annualized 2.3% in the fourth quarter of 2013, and that business sector product rose by just 1.6%.
“The positive turnaround in export data is based mainly on pharmaceuticals exports which are generally volatile, and exports by labor-intensive industries are still in a virtual standstill.
Various indicators of activity in January pointed to some recovery, but consumer confidence indices continued to signal pessimism, and data continued to indicate a lack of growth in employment and wages in the business sector,” the Bank of Israel warned.
The Bank of Israel added that, in the past month, the shekel depreciated by 1% in terms of the nominal effective exchange rate, and by 7.3% since the beginning of 2013.