Bank of Israel surprises with interest rate cut

October 29, 2012 20:41
1 minute read.

The Bank of Israel Monetary Committee on Monday cut the interest rate for November by 25 basis points to 2%, taking analysts by surprise.

The Bank of Israel had kept the interest rate at 2.25% for four months. The Bank cited the need to provide additional support for economic activity, and the absence of inflationary pressures for the interest rate cut.

In a related move, Bank Supervisor David Zaken published a draft directive to limit the loan-to-value of new mortgages.

The Bank of Israel cited the increases in home prices in recent months, and the continued increase in housing credit against the background of low interest rates in the mortgage market, as the reason for the directive limiting the loan-to-value ratio, in order to support the stability of the banking system.

As for the interest rate cut, the Bank of Israel cited the latest indicators which show moderation in the growth rate to 3%, pessimism in consumer surveys and the Business Tendency Survey, indicating further slowdown.

"Economic activity in the first few months of 2013 is expected to be affected by the fiscal restraint inherent in the monthly expenditure limitation until a new budget is approved," said the Bank of Israel.

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