Bank of Israel Cuts Policy Interest Rate Unexpectedly

September 23, 2013

There has been a ninth interest rate cut of 25 basis points in the current streak of ease dating back to September 2011.  Compared to a peak then of 3.25%, Israel’s central bank interest rate now falls to 1.0%, and all but 50 basis points of the normalization engineered from August 2009 to May 2011 has now been reversed.  This was the first cut since May 27.  The only other cut of 2013 had been announced two week previously on May 13.  A statement of explanation defended today’s action with the following points:

  • Consumer prices posted only a 1.3% 12-month rate of increase in August, down sharply from 2.2% in July and well below the middle of the 1-3% target.
  • Expected inflation over the coming year also lies below the inflation target midpoint according to several different estimates of such.
  • The Israeli shekel continues to appreciate, augmenting weaker foreign demand and curbing the strength of exports.  The shekel rose 1% since the central bank’s August meeting and is up 4.6% since the previous rate cut and 6.6% so far in 2013.

The next policy announcement is scheduled October 28.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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