Klein cuts interest rate for February by 0.3% to 4.5%

The Bank of Israel has cut its key rate by an unprecedented 4.6% since December 2002.

This afternoon, Governor of the Bank of Israel David Klein announced a cut of 0.3% in the central bank’s key interest rate for February, to 4.5%. The cut was within the expected range.

Today’s announcement follows cuts of 0/4-0.5% in each of the past eight months.

Klein’s interest rate decision for February signals a slowing in the pace of cuts in the next few months. The bank’s press announcement stressed that its financial models indicated that the inflation target for the coming twelve months, and for the following twelve months, could be reached while interest rates were slowly lowered.

The 4.5% interest rate for February will be the lowest since December 2001. The effective interest rate will be 5%. The real rate on Bank of Israel sources is currently 4.1%.

The gap between shekel and US dollar rates is now just 3.8%, the narrowest since 2002. Israel’s risk premium on overseas markets remains very low, at 0.6%.

The Bank of Israel points out that the cumulative cut of more than 50% in the interest rate since December 2002 has brought the real interest rate down from 7.2% to 4.1%, and says that the current real interest rate is a stimulus for growth and employment, while price and financial stability will be maintained.

Full Bank of Israel announcement

Published by Globes [online] - www.globes.co.il - on January 26, 2004

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