Bank of Israel Implements a 25-Basis Point Interest Rate Cut to 0.75%

February 24, 2014

Israel’s key central bank lending rate for March will be within 25 basis points of the Great Recession low of 0.5%.  Few analysts foresaw today’s rate reduction by monetary officials, which was the first drop since September 23 and the tenth consecutive decline of such magnitude dating back to September 2011.  Following the Great Recession, the lending rate had bee lifted by 75 basis points each in 2009 and 2010 and by 125 bps in the first five months of 2011 to a peak of 3.25% that lasted for four months.

The press release from the five-person policy committee noted lower-than-expected CPI inflation in January, which at 1.4% was in the lowest quadrant of the central bank 1-3% target range.  Measures of short-term expected inflation also have drifted lower, and global economic prospects are uncertain.  4Q-over-4Q GDP growth in 2013 was slightly lower than 2.5%, and business-sector output barely exceeded 1.5%.  Currency market intervention has been necessary to prevent undue shekel appreciation.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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