Update: Bank of Israel Cuts rates by 0.5%

The Bank of Israel(BOI) has surprised market players by lowering rates by 0.5% down to 2.5%. This is the lowest interest rate level ever in Israeli history. This means that you will pay less on overdrafts, and conceptually, get better loan terms at your bank. Whether the banks start granting loans is anyone's guess. On the other hand interest that you will receive on your bank deposits or on Israeli government bonds will drop.

The BOI must feel that with limited inflation risk, and the economy showing signs of zero growth, they need to do whatever it takes in order to jump start the economy. Now if the governement would only cut taxes!

US Dollar Surges on Bank of Israel Rate Cut

In a surprise move, Bank of Israel governor Stanley Fischer cut interest rates to 3%. Citing increasing challenges to the local economy and even a potential recession (maybe he read some of my posts!), Fischer made the unexpected move in order to help stem the economic slide.

With analysts lowering their '09 growth forecasts, Fischer who has until last week remained unrealistically optimistic, appears to have thrown in the towel an admitted that things aren't all that rosy, and is trying to add liquidity to the Israeli banking system to try and prevent the same type of credit crisis gripping the global banking system .

As a result of the cut, the US Dollar soared almost 2% against the Shekel. For consumers the rate cut is helpful. It will mean lower rates that you need to pay on overdraft, lower rates for loans and other types of credit. On the other hand, investors in Israeli bonds will receive less interest on their investment.