The Bank of Israel Monetary Committee today cut the interest rate for October by 25 basis points to 1%, taking most analysts by surprise. The rate cut may be Acting Governor Dr. Karnit Flug's last act before handing the reins over to a new governor.
The Bank of Israel last cut the interest rate, to 1.25%, in May when Prof. Stanley Fischer was still at the helm, having steadily cut the interest rate since September 2011, when it was 3.25%.
The Bank of Israel did not originally plan to hold a Monetary Committee meeting this month, because of the holidays, and the decision in August was supposed to hold for both September and October.
In making its decision to cut the interest rate, the Bank of Israel cited: the inflation rate, which is below the midpoint of the inflation target range; the moderate growth rate, while warning of the decline in exports and slowing private consumption; the expected slowing in government expenditures in 2014, along with the tax hikes that will come into effect; the slowing global economic recovery in both developed countries and emerging markets; and the Federal Reserve Board's decision to continue its quantitative easing program at the current volume, as well as accommodative monetary policies by the European Central Bank, the Bank of England, and the Bank of Japan.
The Bank of Israel also noted that the reduced geopolitical tension and accommodative monetary policy worldwide, is again causing the shekel to appreciate against leading currencies. The shekel has appreciated by 1% since the previous monetary discussion, it noted, and by 6.6% for the year to date.
As for the real estate market, the Bank of Israel says, "Home price appreciation continues, and mortgages continued to be taken out in large volumes. However, guidelines published by the Supervisor of Banks, which limit the share of repayment out of income, the share of the loan which may be granted at variable rate interest, and the term until final loan repayment, are expected to reduce the risk to mortgage borrowers and the banking system."
Published by Globes [online], Israel business news - www.globes-online.com - on September 23, 2013
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