Bank of Israel Governor Stanley Fischer
Photo: Ohad Zwigenberg
Bank of Israel cuts interest rate to 1.25%
Central bank reduces its key rate by 0.25% despite appreciation of US dollar against shekel by 3.9% since last interest rate reduction two weeks ago. Dollar's exchange rate still 1% lower than in late 2012
Two weeks after unexpectedly cutting interest rates by 0.25%,
the Bank of Israel's
Monetary Committee on Monday reduced its key rate by a further 0.25% to 1.25%.
The bank also announced two weeks ago a new plan to purchase foreign exchange, which is expected to last until 2018, in order to offset the effect of natural gas production
on the exchange rate.
In the past 20 months, the central bank has slashed interest rates eight times, at an accumulated rate of 2%.
Early Estimates
Mickey Peled, Calcalist
Initial estimates released by Central Bureau of Statistics reveal slight acceleration in growth rate in first three months of 2013. Business sector GDP up 2%, private spending rises 5.6%
The Bank of Israel explained in a statement at the time that the decision was made "in light of the continued appreciation of the shekel, taking into account the start of natural gas production from the Tamar gas field, interest rate reductions by many central banks – notably the ECB, the quantitative easing in major economies worldwide and the downward revision in global growth forecasts."
Expectations for a second rate cut in May grew after minutes of the May 13 rate decision showed that half the Monetary Committee's six members voted for a steeper half-point rate reduction.
But Bank of Israel Governor Stanley Fischer broke the tie by voting for the less aggressive quarter-point cut that was accompanied by a Bank of Israel plan to buy $2.1 billion of foreign currency over the rest of 2013.
The Monetary Committee decided to further lower the interest rate despite a 3.9% appreciation in the US dollar against the shekel since the last reduction two weeks ago. Nonetheless, the dollar's exchange rate is still 1% lower than its level at the end of last year.
Reuters contributed to this report
