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March 25, 2008

Bank of Israel slashes rates by 50 basis points

by Richard Kilner

Story link: Bank of Israel slashes rates by 50 basis points

Governor Stanley Fischer, the head of the Bank of Israel, has defied expectation by lowering the nation’s interest rates to their lowest ever.

Fischer decreased the central bank rate to 3.25%, a cut of 50 basis points, and attributed his move to the necessity of maintaining stability in prices.

The prime interest rate also dropped by 50 basis points, from 5.25% to 4.75%.

The primary objective of the Bank of Israel is to keep inflation between 1% and 3%.

Although a half point cut in interest rates had been widely forecast by industry analysts, Fischer sprung a surprise by stating that the central bank was to begin purchasing $25m worth of dollars every business day and, in so doing, to bolster Israel’s foreign currency reserves by $10bn within two years.

Recently the shekel has been performing strongly, perhaps too strongly, against the dollar, and the surprise move is seen as one way to attempt to weaken it to a more preferable level.

Over the course of the last two months Fischer has lowered the interest rate by a full 100 basis points to its lowest ever level.

 

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