Israel cuts rates by 75 basis points

by Richard Kilner

Story link: Israel cuts rates by 75 basis points

The Bank of Israel has cut interest rates by 75 basis points to 1.75%.

The move is the latest in a long line of cuts mirrored by central banks across the world from New Zealand to the US.

Inflation in Israel decreased by 0.6% to 3.9%, reflecting the declining global demand for goods.

The cut was of the magnitude expected by most, with ynetnews.com explaining that forecasters generally predicted a reduction of between 50 and 100 basis points.

However, the forecasters were thrown off by Governor Stanley Fischer’s timing, as he waited for the scheduled time to announce the decision rather than pre-empting it with an immediate cut following Federal Reserve’s latest move, as has happened in recent months.

In the short term the Bank of Israel believes it will achieve its goal of returning inflation to within the 1-3% target band.

However, over the course of 2009 the central bank expects inflation to fall to beneath 1% due to the global inflationary environment.

By once again reducing rates the central bank aims to ease the cost of lending and bolster the economy as the worldwide economic downturn continues to unfold.