The Bank of Israel announced on Monday that it has cut the interest rate by 25 basis points from 2.75% to 2.5%. Although the Bank of Israel left the interest rate unchanged last month, it had cut the rate twice, each time by 25 basis points, at the end of November and at the end of September.
The cut was a minor surprise because in a Bloomberg poll over the weekend,11 out of 19 analysts expected no cut, while the minority of eight experts had predicted the 25 basis points cut.
In explaining the reasons for the cut, the Bank of Israel said, "The decision to reduce the interest rate to 2.5% for February 2012 is consistent with the interest rate policy that is intended to entrench the inflation rate within the price stability target of 13 percent inflation a year over the next twelve months, and to support growth while maintaining financial stability. The path of the interest rate in the future depends on developments in the inflation environment, growth in Israel, the global economy, monetary policies of major central banks, and developments in the exchange rate of the shekel."
The Bank of Israel added that the main considerations in the decision were, "the slowdown in growth of Israel's economy as seen in exports and in domestic demand, against the background of weakness in the global economy and the significant uncertainty existing in the global environment, primarily around Europe. In addition, surveys of expectations, both of consumers and companies, show that the slowdown in the rate of growth is expected to continue."