The Bank of Israel monetary committee has cut the interest rate for July by 0.25% (25 basis points) to 2.25%.
The Bank of Israel cited the low interest rate, continued moderate GDP growth at around 3% a year, and the global economic slowdown as the reasons for the interest rate cut. Most analysts had predicted the rate cut
Immediately after the announcement a senior source at the Bank of Israel told "Globes," "The Israeli economy is in good shape in relation to other countries. Lowering the interest rate is a form of buying insurance against negative developments that might take place in the global economy."
The Bank of Israel also reiterated its growth forecast of 3.1% for 2012 and 3.4% for 2013 and predicts inflation of 2.4% over the next 12 months with the interest rate remaining at 2.25%.
In explaining its interest rate decision today, the Bank of Israel stated, "Following the May CPI, actual inflation over the previous 12 months is below the center of the inflation target range, and inflationary pressures are not felt. Various inflation expectations for the coming 12 months are around the center of the target range… Prices of commodities, particularly oil, declined sharply, a continuation of their declines in the previous two months."
On the macroeconomic front it adds, "Most indicators of real economic activity in Israel, which became available this month, point to continued moderate growth at an annual rate of 3%, a rate similar to that of the first quarter. After the reduction in the interest rate for July, the Research Department staff forecast for GDP growth in 2012 remains 3.1% and the forecast for 2013 was revised to 3.4%."
On the global front, the Bank of Israel states, "This month macroeconomic data around the world indicate a further slowdown in growth, and projections of international organizations were revised downward. The level of economic risk in the world due to developments in Europe remained high, and with it the concern of negative effects on the domestic economy.
"Interest rates in the major economies remain low, and markets are not pricing in any increases in interest rates this year by any of the leading advanced economies' central banks. Several central banks even reduced interest rates this month. Against the background of recent developments, the Fed announced the continuation of its easing plans, and there are increasing market assessments that several central banks will take additional easing steps."
Published by Globes [online], Israel business news - www.globes-online.com - on June 25, 2012
© Copyright of Globes Publisher Itonut (1983) Ltd. 2012