Fischer mulls lowering interest rate

Capital market crisis drives Bank of Israel governor to consider policy change on backdrop of weakness demonstrated by Israeli economy. Implications: Rejection of protesters' demands regarding high cost of living, soaring housing costs

Amnon Atad, Calcalist |Published: 08.09.11 , 12:54

Israel's prime minister is not the only official pondering a change of tune following the past weeks' maelstrom; Bank of Israel Governor Stanley Fischer is mulling a change of the Bank's policy of the recent two years and in a surprising move, cutting the interest rate which was lowered on April 2009.

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Calcalist has learned that if the debt and confidence crisis in the US and Europe persist and unrest on global markets continues, Fischer will probably announce that the Bank would lower the interest rate by 0.25% already in September – in three weeks time.

The possible policy change stems from several reasons the main one of which is the realization that recent developments in Israel and the world shoves inflation down the priority list to second place and pushes the need to shore up Israel's economic activity to the top of the list.

According to the Central Bureau of Statistics, Israel's economy has recently been showing signs of weakness. The Bank of Israel itself adjusted downward growth forecasts and now expects a 4.8% growth rate for this year's economy as oppose to its 5.2% growth forecast from several months ago.

Fischer's press conference last week offered a telltale sign of his new approach: "The US economy is approaching a slowdown and possibly even worse than that. The sovereign debt crisis is continuing in Europe's periphery countries and now we have the crisis in Italy as well. The implication of these developments is that the market environment to which Israel belongs is becoming harsher and we can already see adverse effects on our exports."

The expected interest cut reflects Fischer's determination to grapple with the threat to Israel's economy even if it means rejecting protestors' demands regarding the cost of living and high housing costs.