Bank of Israel's monetary committee reduced the interest rate for August 2014 by 0.25 percentage points, to 0.5 percent.

The following are the main considerations underlying the decision: There was a decline in the inflation environment this month. Inflation measured over the preceding 12 months declined, as expected, to a level of 0.5%, below the lower bound of the target range.

The CPI excluding the housing component declined by 0.2% over that period. Since the April CPI was published, there has been a decline in inflation expectations for all terms, and short-term expectations approached the lower bound of the target range. Indicators of real economic activity which became available this month indicate continued moderate growth, similar to previous quarters. With that, they refer to the period before the deterioration of the security situation; its moderating effect cannot yet be estimated.

Weakness continues in goods exports, against the background of the virtual standstill in world trade and the cumulative appreciation, with moderation in high technology exports. Weakness is also apparent in private consumption over recent months. Labor force survey data indicate stability, and the growth in the number of employee posts has halted.

The shekel strengthened by 0.8 % this month in terms of the nominal effective exchange rate, and has appreciated by about 2 percent for the year to date. The real exchange rate is at a level that weighs on growth in the tradable industries—exports and import substitutes, particularly in light of the virtual standstill in world trade.

The Bank of Israel noted it will continue to monitor developments in the Israeli and global economies and in financial markets. 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 continue to keep a close watch on developments in the asset markets, including the housing market.