The central bank unexpectedly lowered its benchmark interest rate to a new all-time low of 0.10% from 0.25% on Monday.
The new figure was decided upon in an effort to stem a strengthening shekel and fight deflation. The new rate will become effective in March. The Monetary Committee’s decision to reduce the interest rate for March 2015 to 0.10% is consistent with the Bank of Israel’s monetary policy, which is intended to return the inflation rate to within the price stability target of 1 to 3% a year over the next 12 months, and to support growth while maintaining financial stability.
The path of the interest rate in the future depends on developments in the inflation environment, growth in Israel and in the global economy, the monetary policies of major central banks, and developments in the exchange rate of the shekel.
The bank said the decision was prompted by the continued appreciation of the shekel against the dollar, which “was liable to weigh on growth in the tradable industries – exports and import substitutes.” The move was also designed to avoid negative inflation, as indicated by lower Consumer Price Index levels.
The bank noted that the recent 0.9% drop in the CPI was expected to be followed by another 0.5% CPI drop in February owing to lower prices in the energy and water industries.
