The reduction of the interest rate and the narrowing of the interest rate corridor will help strengthen the economy’s ability to cope with the effects of the global economic crisis
The Bank of Israel announced last week a cut in its benchmark interest rate by 25 basis points to 0.75% the announcement is seen as a move to help the economy cope with the global crisis. Most local analysts expected a cut of 50 basis points.
The Bank of Israel said in a statement issued following the cut was announced that: "The effects of the global crisis on real economic activity in Israel are evident in their negative impact on demand for exports and production, and the marked slowdown ineconomic activity”.
The statement added that "With the interest rate now at an unprecedentedly low level, the Bank of Israel will focus on the use of additional instruments that lead to monetary expansion”.
The reduction of the interest rate for March by 0.25 percentage points and the narrowing of the interest rate corridor will help strengthen the economy’s ability to cope with the effects of the global economic crisis. The decision serves to encourage real economic activity, is consistent with the stability of the financial system, and serves to moderate the downward pressure on prices that threaten to pull inflation below the target range of price stability.
The Bank of Israel will continue to monitor Israeli and worldwide economic developments closely, and will employ whatever additional instruments are necessary to achieve its objectives of price stability, the encouragement of employment and growth and support for the stability of the financial system.
Monday's interest reduction followed two previous cuts, which amount to an overall 3.5% cut over the past 12 months.
The governor of the central bank was also quoted in the past as saying he did not rule out the possibility of cutting interest rate all the way down to 0%.
Uriel Lynn, president of the Federation of Israeli Chambers of Commerce, said that "Cutting interest rates is no longer effective and as this point it hurt peoplewho keep their savings in bank-based accounts”.