The Bank of Israel announced Monday evening that it is setting the interest rate it charges banks at 2.5 percent in December, a drop of half a percent from the current rate. The new interest rate is the lowest in the history of the modern Jewish state.
According to a statement announcing the drop, the bank said the move is designed to return inflation to the target range of 1–3 percent in the next year and help "strengthen the economy’s ability to cope with the implications of the global financial crisis...." The bank said that interest rate expectations, both those derived from the capital market and those of forecasters, were for a reduction of about half of the one that was made. It also noted downward trends in the Israeli and international economies. The statement adds, "Capital markets expect central banks around the world to continue to cut their interest rates."
It concluded, "The depreciation of the shekel against the dollar does not at this stage threaten the achievement of the inflation target or financial stability." The dollar declined in Israeli foreign currency exchanges on Monday, closing at 3.993 shekels, a drop of .721 percent. The euro was fixed .998 percent higher at 5.0919 shekels and the pound sterling was up .097 percent at 5.9799 shekels.
All the indexes on the Tel Aviv Stock exchange closed in the plus column on Monday, buoyed by news of the United States government's bailout of Citigroup, and anticipation of the drop in the Israeli prime interest rate. The Tel Aviv 100 Index rose 6.76 percent to 552.78, while the TA-25 climbed to 623.66, and advance of 5.34 percent. The Tel-Tech closed at 130.52, a gain of 12.52 percent.