Bank of Israel cuts interest rate to 1.25%

The Bank of Israel has lowered the interest rate for June by 0.25%. This is the second 0.25% rate cut this month.

The Bank of Israel has cut the interest rate for the second time in two weeks. The Monetary Committee today announced that the interest rate for June will be cut by 25 basis points to 1.25%, just two weeks after it cut the interest rate by the same amount in an extraordinary mid-month rate cut.

A "Bloomberg" poll of 21 analysts over the weekend found that nine analysts predicted the rate cut, while twelve analysts expected the Bank of Israel to keep the interest rate unchanged.

The Bank of Israel reiterated the same reasons to justify the mid-month interest rate cut to explain cutting the interest rate for June. It wants to narrow the gaps between the Bank of Israel’s interest rate and the rates in major economies worldwide, in order to weaken the forces for appreciation of the shekel.

The Bank of Israel also cited the accommodative monetary policy of major central banks in the past two months. "The ECB reduced its interest rate to a record low of 0.5% and its president stated that he does not rule out further interest rate reductions. Quantitative easing plans continue in the US, and the Bank of Japan announced at the beginning of April that it would double the rate of its bond purchase plan. The expansionary policy of central banks in major advanced economies is expected to continue, according to their announcements, in the coming year as well."

It added that macroeconomic indicators for Israel indicate continued moderate growth in the first quarter, but a mixed trend in April. It also noted mixed macroeconomic data that were published for major economies, and that the IMF cut its 2013 growth forecast for most major economies.

The Bank of Israel also noted that home prices rose by 10.5% in the 12 months through March, and that the government's new tax measures in the housing market are expected to moderate demand.

The protocols of the extraordinary mid-month Monetary Committee meeting showed that three members voted for a 0.5% rate cut at that time and three voted for only a 0.25% rate cut including Governor of the Bank of Israel Stanley Fischer. Due to the tie, Fischer had a deciding vote and opposed the bigger cut.

Published by Globes [online], Israel business news - - on May 27, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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