The Bank of Israel reduces the interest rate by 0.25% to 1.5 %

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For a press release on the foreign exchange purchase plan to offset the effect of natural gas production, click here

For a document with questions and answers on these decisions, click here


In light of the continued appreciation of the 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 of Israel’s Monetary Committee reached two decisions outside the regularly scheduled framework.
 
  •  The appreciation trend of the shekel continues. In terms of the effective exchange rate, the shekel has appreciated by 2.4 percent in the past month, and by 5.4 percent in the past 3 months. The shekel’s strength against the dollar and the euro during these periods stood out markedly in comparison with other currencies’ movements vis-à-vis the dollar and euro. The appreciation trend was affected by, among other things, the beginning of natural gas production from the Tamar gas field, the interest rate reductions by central banks worldwide, notably the ECB, and the continued quantitative easing programs in several major economies around the world.
  •  Forecasts of global growth, in particular projections regarding Europe and China, have recently been revised downward. This moderation is expected to have an effect on Israel’s economy.


Against this background, the Bank of Israel’s Monetary Committee reached decisions outside the regularly scheduled framework. The decisions reached by the Monetary Committee are the following:

 

  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 notes 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. Likewise, actions taken by the Banking Supervision Department in the past are moderating the impact of the monetary interest rate on the housing market.

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The decision regarding the interest rate for June 2013 will be published at 17:30 on Monday, May 27, 2013.

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