MoneyIsrael news photo: Flash 90

The Bank of Israel dropped the country's prime interest rate on Monday to its lowest level in more than two years.

Governor Stanley Fischer and the committee cut the rate by one-quarter of a point to 1.75 percent.

"Indicators of real economic activity continue to point to weakness and further moderation in the rate of growth is likely,” the Bank said in a statement on its website.

"The level of economic risk from around the world remains high, and with it the concerns over negative effects on the local economy.”

The Bank maintained a cautious attitude of optimism, however, noting its expectation that the Israeli economy would expand by 3.8 percent, considering natural gas production.

If, however, local natural gas production for some reason does not pan out, growth predictions are revised to 2.8 percent, down from 3 percent last quarter.

Growth for the year 2012 was forecast at 3.3 percent.