Governor of the Bank of Israel Stanley Fischer announced Monday that he will be cutting interest rates by 0.25%, to 0.75%. Fischer supported his decision by saying the market's dismal performance in 2008's last quarter called for it.
Though many question the effectiveness of any further interest cuts, it is believed that faced with increasing layoffs, the drop in January's Consumer Price Index and 2009's overall negative growth projections, Fischer is trying to signal that the situation in under control.
The Bank of Israel is also gearing up to use several other financial tools meant to stabilize the market. The Bank recently announced it would begin buying long-term government bonds, with a contingency plan in the form of corporate bonds acquisitions, as means to boost companies' credit ratings, waiting in the wings.
Monday's interest reduction followed two previous cuts, which amount to an overall 3.5% cut over the past 12 months. The governor was also quoted in the past as saying he did not rule out the possibility of cutting interest rate all the way down to 0%.
"Cutting interest rates is no longer effective and as this point it hurt people who keep their savings in bank-based accounts," said Uriel Lin, president of the Federation of Israeli Chambers of Commerce.
Ori Yehudai, head of the Chambers of Commerce's financial committee, reiterated the sentiment: "Interest tools have run their course in Israel, as they have in the rest of the world." Yehudai urged the government to work with the Bank of Israel in order to extend better lines of credit to the business sector and relieve some the pressure the banking system is under in that respect.