Bank of Israel Governor Prof. Stanley Fischer slashed the interest by half a percent Tuesday night, dropping the prime rate to a record low 3 percent in a frantic attempt to block a recession. The cut reflected a sense of urgency because the central bank usually decides on rate changes toward the end of the month, after the previous month's consumer price index is reported.
The move follows by several days Fischer's comments that he is worried about the economy. "We expect 2.7% growth in 2009, and we are accused of over-optimism," he stated. "In such times, if you want to be serious, you should be worried, and I am really worried. Wise men won't tell you that there is nothing to be worried about." 
Wise men won't tell you that there is nothing to be worried about.
Investment firm Excellence's chief economist Shlomo Maoz has cut his growth forecast for Israel's economy in 2009 to 1.7%, Globes reported Tuesday.
The slowdown in Israel, which up until this year was considered one of the world's steadiest growing and strongest economies, is part of a global pattern and is a direct reaction to the financial tsunami that has hit the United States.
The results have been a classic case of falling dominoes.
Bank and finance investment house bankruptcies and colossal debts by overdrawn companies have sunk stock market indices by 50 percent and some stocks have lost 90 percent of their value.
The bankruptcies and credit cutbacks have forced people out of work. In addition, the market crash has left pension funds and private investors with a huge reduction in wealth, with gambling casino tycoon Sheldon Adelson losing more than half the value of his $20 billion empire.
The bottom line is there is less money for consumption, the driving force behind the economic boom that has gone bust. That means a drop in sales for companies, which lay off even more people as profits drop.
Good news for consumers has come in the form of dropping prices after a one-way skyrocketing ride that ended up with the price of flour, bread, and gasoline going through the roof.
The plunge in commodity prices - crude oil hit a two-year low of under $60 a barrel Tuesday - has reversed expectations of high inflation, allowing central banks around the world to slash rates, and Fischer has followed suit.
However, the slash also caused the shekel-dollar rate to soar to nearly 3.90 Tuesday night before dropping back to slightly under 3.88 shekels to the dollar. A higher interest rate has an inflationary effect for renters and homebuyers whose contracts are in dollars.