The Bank of Israel has cut its interest rate for February from 2.75 to 2.5 percent, noting that a slowdown that began in the second half of 2011 has continued.
The bank's policy statement, released at 10:30 a.m. Eastern time, noted the interest rate for February was cut by a quarter of a percentage point.
The “slowdown in activity and in demand that started during the second half of 2011 continues,” noted the Bank in its statement, adding that consumer-price inflation for 2011 was 2.2 percent, near the midpoint of the target range of 1 to 3 percent.
Inflation expectations for the next 12 months are also close to the midpoint of the target range, and home prices have “continued to decline at a moderate pace,” the bank said.
Manufacturers and business owners received the news with relief and congratulated BOI Governor Stanley Fischer on the decision to lower the interest rate, saying they hoped the trend would continue.
Officials at the Israel Manufacturers' Association noted that the interest rate in Israel is still quite high in relation to the rest of the world. In the U.S. and the European Union, IMA officials contend, interest rates currently stand at about one percent. Since the projected inflation rate for next year is about 2 percent, the Bank could “afford” to lower interest rates even more, providing a boost for the economy and hopefully sidestepping the recession now being felt in many Western nations.