Last update - 00:00 24/03/2008
Bank of Israel cuts interest rate to lowest level in history
By TheMarker
Bank of Israel Governor Stanley Fischer on Monday confounded expectations and lowered Israeli interest to a historic low.
The prime rate, on which bank loans in Israel are based, drops to 4.75%, after Fischer's half-percent rate cut for April that lowered the central bank interest rate to 3.25%. At the end of the week, the commercial banks will be lowering the interest they charge on overdrafts and loans.
Most economic analysts had expected a lesser rate cut of 0.25%, postulating that would suffice to keep prices stable. However, Fischer explained, there are growing expectations of a global economic slowdown, which however strong Israel's economy would lead to slower economic growth domestically too. That in itelf would dampen inflationary forces: Lower demand for goods that Israel exports would in turn lower domestic demand. Prices could be kept stable at a lower level of interest, and lower interest in turn would stimulate economic growth by making it easier for businesses to borrow, the central bank concluded.
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