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We saw a real landmark yesterday: the lowest interest rate in the history of the state. Bank of Israel Governor David Klein lowered central bank interest to 3.7 percent, effectively cutting all interest rates. We will pay less for overdrafts and mortgages.

This is good news for the business sector, because low interest means lower costs. Low interest makes investment more worthwhile, encourages activity and economic growth.

The central bank explains that the rate of expected inflation remains low, financial markets are stable, the growth is continuing and new jobs are being created. The bank notes "the growth process' Achilles' heel continues to be investment."

Investments have fallen for four straight years, but are the governor's hands clean?

Klein notes that since December 2002 he has cut interest rates by 5.4 percent. This is true, but the drop was painfully slow. In 2003, Israel was in deep recession, there was serious fiscal restraint, so why high interest, a lethal dose for investment and growth?

How does the world work? In Japan's deep recession, the central bank maintains zero interest. In the slowdown in the U.S., the Fed kept the interest rate at 1 percent, and the European Central Bank maintains just a 2 percent interest rate.

But Klein wanted to play it safe. His tactic was clear: belt and suspenders. When there were reasons to raise interest rates, he was quick on the draw. When there were reasons to cut rates, he pulled delays out of a hat, once "expectations," another time "models," after that "budget deficit," followed by "interest rates at other central banks," despite them having nothing to do with the Israeli economy.

The result was that Klein cut rates so slowly that inflation was below target for four of five years, assuming 2004 posts inflation of less than 1 percent. This indicates an excessively restrictive monetary policy. So we had nothing left to do but smile when reading yesterday's explanation: "In the past two years, Bank of Israel has diverted interest policy to support economic growth." If high interest "supports growth," what hampers growth?

Indeed, interest rates alone cannot work miracles. Interest alone cannot move the economy. Responsible fiscal policy is far more important, accompanied by cautious wage policy, aggressive reform policy - and light at the end of the diplomatic-military tunnel. But interest can help. So if Klein were really acting to "support economic growth," we would have seen 3.7 percent interest a year ago, and today we would be reporting something far lower.