Bank of Israel cuts interest rate to 1%
Citing strengthening shekel, expectations of slower growth in consumer and government spending, central bank lowers key short-term rate by 0.25%, bringing it to its lowest level since December 2009
The central bank lowered its key short-term rate to 1% from 1.25%, making its first reduction since May and bringing the rate to its lowest level since December 2009.
At the same time, it lowered its 2013 economic growth estimate for Israel to 3.6% from 3.8%.
But it raised its 2014 growth projection to 3.4% from a previous 3.2%.
The rate decision was the third under Deputy Governor Karnit Flug, who has been acting Bank of Israel chief since Stanley Fischer stepped down at the end of June. A new governor is expected to be announced in the coming weeks.
The central bank said the tame inflation environment enabled it to cut rates, with annual inflation expected to stay below 2% over the coming year. Israel has an inflation target of 1% to 3% a year.
Most bothersome for the Bank of Israel has been the shekel's appreciation, since a rise in the currency harms exports, which account for 40% of the country's economic activity.
The shekel has gained nearly 7% against the dollar this year and in recent days reached a more than two-year peak. It had weakened last month amid talk of Western military action against Syria and as the Federal Reserve was expected to taper its bond-buying program.
"With reduced geopolitical tension, and against the background of accommodative policy worldwide, there is again appreciation in the nominal effective exchange rate," the Bank of Israel said.
The Fed last week surprised investors by postponing its expected wind-down of monetary stimulus.
"In light of the deferral of the tapering process, the uncertainty about its precise timing, its strength, and its consequences continues," the central bank said.
It added that Israel's economy was growing moderately but that exports were declining and there is moderation in growth of private spending. Government spending growth is expected to moderate in 2014 while at the start of next year, tax increases will come into effect, it said.
