The monetary committee of the Bank of Israel decided to reduce the interest rate by 0.25% to level of 0.75%.
The decision to reduce the interest rate for March 2014 by 0.25 percentage points, to 0.75 percent, is consistent with the Bank of Israel's monetary policy, which is intended to entrench the inflation rate within the price stability target of 1–3 percent a year over the next twelve months, and to support growth while maintaining financial stability.
The main considerations underlying the decision were:
- The CPI for the month of January surprised to the downside, and the inflation rate over the preceding 12 months is 1.4 percent—in the lower portion of the target range.
- According to the initial estimate for the fourth quarter of 2013, GDP increased by 2.3% and business sector product increased by only 1.6%. The positive turnaround in export data is based mainly on pharmaceuticals exports which are generally volatile, and exports by labor-intensive industries are still in a virtual standstill. Various indicators of activity in January pointed to some recovery, but consumer confidence indices continued to signal pessimism, and data continued to indicate a lack of growth in employment and wages in the business sector.
- In the past month, the shekel depreciated by 1% in terms of the nominal effective exchange rate; since the beginning of 2013, there has been a cumulative appreciation of 7.3%.
The Bank of Israel noted it will continue to monitor developments in the Israeli and global economies and in financial markets, particularly in light of the continuing uncertainty in the global economy.
The Bank will use the tools available to it to achieve its objectives of price stability, the encouragement of employment and growth, and support for the stability of the financial system, and in this regard will keep a close watch on developments in the asset markets, including the housing market.
