JERUSALEM: The Bank of Israel kept up its battle against shekel appreciation and the prospect of slower export growth with its second interest rate reduction this month.
After unexpectedly cutting the benchmark at an unscheduled meeting on May 13, the central bank reduced it by another quarter-point yesterday to 1.25 percent, its lowest level since March 2010. The move had been expected by six of 13 economists polled by Reuters, while seven others had forecast no move.
Signs at the start of this year that Israel’s economy was improving have waned while the shekel has gained sharply in recent months, partly due to Israel’s relatively high interest rates, threatening to further harm exports that account for 40 percent of economic activity.
“The (Monetary Policy) Committee decided to reduce the interest rate and thus narrow the gaps between the Bank of Israel’s interest rate and the rates in major economies worldwide, in order to weaken the forces for appreciation of the shekel,” the Bank of Israel said in a statement after the rate cut.
At its last scheduled meeting on March 24, the monetary policy committee (MPC) had kept the benchmark rate on hold for a third straight month. It next meets on June 24.
Expectations for a second rate cut in May grew after minutes of the May 13 rate decision showed that half the MPC’s six members voted for a steeper half-point rate reduction. But Bank of Israel Governor Stanley Fischer broke the tie by voting for the less aggressive quarter-point cut that was accompanied by a Bank of Israel plan to buy $2.1bn of foreign currency over the rest of 2013.
Reuters
