The Bank of Israel cut its benchmark interest rate in a surprise move last Monday, citing a strengthening shekel and expectations of slower growth in consumer and government spending next year.
The five-member monetary policy panel, which has been led by acting Governor Karnit Flug lowered its key short-term rate to 1% from 1.25%, making its first reduction since May and bringing the rate to its lowest level since December 2009.
The decision to reduce the interest rate for October 2013 is consistent with the Bank of Israel's monetary policy, which is intended to entrench the inflation rate within the price stability target of 1–3% 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 and in the global economy, the monetary policies of major central banks, and developments in the exchange rate of the shekel.
Analysts noted that the decision shows that the central bank was interested in reacting to the appreciation of the shekel in recent days and is still concerned about a slowdown in the economy.