In an unscheduled move, the Bank of Israel, cut the benchmark interest rate by a quarter percentage point to 1.5% effective May 17, 2013 and pledged to buy about US$2.1 billion by the end of the year, in an effort to tame the shekel’s gains.
In a press release the central bank noted that in light of the continued appreciation of the Israeli shekel, taking into account the start of natural gas production from the Tamar gas field, interest rate reductions by many central banks—notably the ECB, the quantitative easing in major economies worldwide and the downward revision in global growth forecasts, the Bank's Monetary Committee reached two decisions outside the regularly scheduled framework:
1. To reduce the monetary interest rate by 0.25 percentage points to 1.5 percent, effective Friday, May 17, 2013.
2. Beginning this year, and in coming years, the Bank of Israel will purchase foreign exchange in order to offset the effect of natural gas production on the exchange rate.
The Bank of Israel noted that the inflation environment is below the midpoint of the target range and is expected to remain within the range in the coming year as well. Israel’s inflation rate dropped to a six-year low in April, adding to the economic evidence that spurred policy makers to cut borrowing costs. Annual inflation slowed to 0.8% in April from 1.3% in March.