The Bank of Israel cuts the interest rate by 0.5 percentage points with effect from 12 October 2008

The Bank of Israel cuts the interest rate by 0.5 percentage points with effect from 12 October 2008
From 12 October 2008 the interest rate will be 3.75 percent
The Bank of Israel announces that the decision to cut the interest rate was made in light of the sharp increase in uncertainty in financial markets around the world and its implications for Israel's financial markets.
The decision to reduce the interest rate by 0.5 percentage points was made in view of the following considerations:
  Inflationary pressures in Israel are expected to ease significantly due to the continued fall in world commodity prices and the expected slowdown in economic growth. Inflation expectations and Israeli forecasters inflation predictions for the next twelve months are now within the target range.
  Since the deterioration in the global financial crisis--with its implications for the domestic markets--the chances of a slowdown in Israel's rate of economic growth in the near future have risen. The current reduction in the interest rate will act to strengthen the economy's ability to meet the challenges confronting it.
  In light of the developments in the domestic financial markets and the sharp rise in volatility, the reduction in the interest rate serves to increase liquidity in these markets.
The Bank of Israel emphasizes that this decision to cut the rate of interest is consistent with the Bank's aims to support economic growth and financial stability, as long as inflation is expected to converge to the price stability range.
The Bank of Israel will continue to closely monitor Israeli and worldwide economic developments, and will take whatever steps are necessary to achieve price stability, which is an essential requirement for sustainable growth, and to support the stability of the financial system. Subject to this, the Bank will continue to support the attainment of a range of macroeconomic objectives, in particular employment and growth.
The minutes of the discussions prior to the above interest rate decision will be published on 20 October 2008. The decision regarding the interest rate for November 2008 will be published at 18:30 on 27 October 2008.