Bank of Israel cuts interest rate to 2.75%

The deteriorating European debt crisis is already affecting the Israeli economy.

The Bank of Israel monetary committee cut the interest rate for December by 25 basis points to 2.75%, after leaving it unchanged for November and cutting it by 25 basis points for October. The Bank of Israel said that the interest rate cut, together with the recent weakening of the effective exchange rate of the shekel, should help Israel's economy deal with the difficulties confronting it.

The interest rate cut was expected by a majority of analysts. Most analysts also expect further cuts in the interest rate to 2-2.25% in the first half of 2012.

Among the reasons for interest rate cut, the Bank of Israel said that the debt crisis in Europe is becoming more severe and is spreading to other countries, and that there is growing concern over its potentially strong impact on the global economy, and that it is already affecting the Israeli economy, an effect that is likely to intensify.

The Bank of Israel also cited the continuing slowdown in Israel's economic activity, due to falling export demand and slackening domestic demand. Inflation expectations are close to the midpoint of the 1-3% target range, and are likely to remain there over the coming year.

In addition, the Bank of Israel added, the European Central Bank (ECB) cut its interest, and the US Federal Reserve says that it will keep its near-zero interest rate through at least mid-2013. Both the Fed and ECB are continuing with their quantitative easing measures to deal with economic problems.

The Bank of Israel also noted that the rise in home price slowed to 10.5% in the 12 months through September from 12.1% in the 12 months through August, and that home prices fell in August-September for the first time since December 2008. It expects home prices to continue to moderate through the coming year.

Published by Globes [online], Israel business news - - on November 28, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

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