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Monetary Committee prompted to cut interest rates once again due to European debt crisis, growing fears of a possible negative effect on Israeli economy.
The Bank of Israel's Monetary Committee decided last Monday to cut its benchmark interest rates for December by 0.25% to 2.75% from 3.00%. Monetary Committee prompted to cut interest rates once again due to European debt crisis, growing fears of a possible negative effect on Israeli economy.
The Bank said: "The decision to reduce the interest rate to 2.75% for December is consistent with the interest rate policy that is intended to entrench the inflation rate within the price stability target of 1–3% 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, the monetary policies of major central banks, and developments in the exchange rate of the shekel."
Previously the Bank cut its monetary policy interest rate in September, after leaving it unchanged at its June, July, and August meetings, and increasing the interest rate by 25 basis points to 3.25% at its May meeting this year. Israel recorded annual inflation of 2.7% in October, 2.9% in September, 3.4% in August and July, 4.2% in June, 4.1% in May, and 4.0% in April and just inside the Bank's inflation target range of 1-3%.
For the second time since the Bank of Israel's establishment 57 years ago, the interest rate decision was made by the Monetary Committee rather than by the bank's governor on his own. The Committee, which took over all of the governor's monetary decisions under the new Bank of Israel Law, has six members, three of whom are representatives of the public. The Committee makes its decisions through a vote. In case of a tie, the governor, who heads the Committee, has the right to vote twice.
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