Bank of Israel Expected to Follow Fed on Rate Cuts

The Bank of Israel is expected to follow in the footsteps of the U.S. Federal Reserve, which hacked its federal funds rate by 0.75% to a record low of 0.25%. Not that the central bank means to lower its overnight rate to a hair above zero, but it is widely expected to cut local rates by 0.5% to 0.75% by year-end. Market sources surmise that Bank of Israel Governor Stanley Fischer may cut local rates twice this month. The Bank of Israel normally makes monetary announcements on the last Monday of each calendar month. But in each of the months of October and November, as turmoil rocked the world financial markets, Fischer cut the central bank lending rate twice.

The Bank of Israel refused to comment for this report. Its overnight rate to banks is presently 2.5%.

Yesterday the central bank held its usual weekly monetary meeting and discussed U.S. Fed chairman Ben Bernanke's surprisingly aggressive rate cut. A source in the central bank management said that Bernanke's move would definitely affect the Israeli decision for January.