Bank of Israel Governor Stanley Fischer, ceding to the reality of the plummeting dollar and to the demands of the business sector, lowered interest rates by 0.5%, to 3.75%. Most economists had expected the bank to either leave the rate unchanged, or cut it by only a quarter of a percent.
The decision lowered the intrinsic value of the shekel, and trading responded as expected with the shekel dropping against the dollar. Following the announcement, the dollar began trading by rising 1.5% against the shekel, though it closed slightly lower on Tuesday afternoon at 3.628 shekels to the dollar. The Euro was up by even more, over 1.8%, and closed at 5.3981 shekels to the Euro compared to just over 5.3 on Monday.
The dollar closed on Monday at 3.58 shekels, the second-lowest shekel-dollar rate in nearly ten years; it was lower only on Feb. 4 of this year.
The dollar dropped from 4.34 shekels last August to below 4 shekels in October, and has continued to drop another 10% since then.
Following Fischer's announcement, Bank HaPoalim announced that it was dropping its prime rate to 5.25%, and its interest rates on approved overdrafts to 8.25%.
Uriel Linn, President of the Israeli Chambers of Commerce, expressed satisfaction with the dropping of the interest rate - a move for which he and his colleagues have long lobbied. The shekel's unbridled rise has caused exporters great losses. Linn said that additional interest rate drops are still necessary, "though in a controlled manner."
Similarly, David Artzi, Chairman of the Export Institute, welcomed the move, and called for additional steps by the Finance Ministry to help stabilize the dollar-shekel rate.