Israel cuts interest rate to 0.1% for March; economic activity accelerates

By Tali Rackner

Norfolk, Va., Feb. 23 – The Bank of Israel decided to reduce its interest rate by 0.15%, to 0.1% for March, according to a press release.

The bank stated that the move is consistent with its monetary policy, which is intended to return the inflation rate to within the price stability target of 1% to 3% a year over the next 12 months and to support growth while maintaining financial stability.

The Consumer Price Index declined by 0.9% in January after remaining unchanged in January, falling by 0.2% in November and by 0.3% in October. The inflation rate for the 12 months ended in January was negative 0.5%, led by declines in clothing and footwear prices and in components affected by fuel prices.

Inflation expectations for the short-term remain below the target range, and there was a slight decline in longer-term expectations toward the midpoint of the target range.

Economic activity accelerated in the fourth quarter of 2014 and recent indicators show it is maintaining a high level in the first quarter of 2015 as well. Fourth-quarter data indicated improvement in all parameters, including the participation rate, which increased to 79.6%, and the employment rate, which improved to 75.8%. The unemployment rate declined to a historic low of 4.8% with an increase in the number of job vacancies.

The shekel strengthened by 2.6% against the dollar and by 0.4% in terms of the nominal effective exchange rate. The cumulative depreciation since August is 2%.

According to the release, the monetary committee believes that as a result of the increased rate of appreciation and its possible effects on activity and inflation, reducing the interest rate to 0.1% is the most appropriate step at this time in order to support achieving the policy targets.

The decision regarding the interest rate for April will be published on March. 23.

The bank last cut the rate by 25 basis points in August and by 25 bps in July 2014.

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