As expected by many traders, Bank of Israel announced at the end of January it will reduce the basic interest rate by 0.25 percent points from 2.75% to 2.5% for February 2012.
The last time Bank of Israel has reduced its basic interest rate was back in November 2011 when it reduced the rate by 0.25 percent points. During 2011, Bank of Israel raised the Israeli interest rate four times mainly during the first months of the year and reduced the interest rate twice during the last few months of the month.
This change in direction shows that the Bank of Israel is more concern of the Israeli economy pulling into a recession that reaching the actual inflation target of Bank of Israel (3%).
As of December 2011, Israeli inflation remained unchanged at 2.2%, which is well in the Bank’s annual inflation target rate of 3%. There are expectations that the CPI will continue to be a very similar rate in 2012 as it was during 2011.
This means there will be more rate reduction in the months to come. The future rate reduction will probably be due to BOI’s concerns revolving the future ramification of the economic slowdown in Europe on the Israeli economy.
During January the U.S dollar depreciated against the NIS: In January the US dollar declined by 2.3% against the NIS. On the other hand the NIS has slightly depreciated against the Euro by 0.3% during the first month of 2012.
For further reading:
- The Israeli Economy Expanded by 4.8% in 2011
- Bank of Israel Kept the January Interest Rate at 2.75%
- Israeli Inflation Slipped by 0.1% in November 2011