Bank of Israel reduces benchmark interest rate by 25 bps to 1½%

By Tali David

Minneapolis, May 13 - The Bank of Israel decided to reduce its benchmark interest rate by 25 basis points to 1½%, effective May 17, according to a bank notice.

In light of the continued appreciation of the shekel, the committee said it reached two decisions outside the regularly scheduled framework.

First, the appreciation trend of the shekel continues. In terms of the effective exchange rate, the shekel appreciated by 2.4% in the past month and by 5.4% in the past three months. The shekel's strength against the dollar and the euro during these periods stood out markedly in comparison with other currencies' movements vis-a-vis the dollar and euro.

The appreciation trend was affected by, among other things, the beginning of natural gas production from the Tamar gas field, the interest rate reductions by central banks worldwide, notably the ECB, and the continued quantitative easing programs in several major economies around the world.

Second, the bank said that forecasts of global growth, in particular projections regarding Europe and China, have recently been revised downward. This moderation is expected to have an effect on Israel's economy.

Against this background, the committee reached decisions outside the regularly scheduled framework.

The bank did note that the inflation environment is below the midpoint of the target range and is expected to remain within the range in the coming year as well. Likewise, actions taken by the Banking Supervision Department in the past are moderating the impact of the monetary interest rate on the housing market.

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