Bank of Israel lowers key lending rate to 7.0 percent

Published May 30th, 2001 - 02:00 GMT

JERUSALEM, (Reuters) - The Bank of Israel said on Tuesday, may 29, it was lowering its key lending rate for June by 0.2 of a percentage point to 7.0 percent. 

 

The cut matched economists expectations of a 0.2-0.3 percentage point reduction and followed a month-long delay in setting monetary policy due to an ongoing strike by central bank employees. 

 

Bank of Israel Governor David Klein did not issue a rate decision for May as central bank workers striking over wages and promotions refused to deliver inflation data and derivative economic models used in setting monetary policy. 

 

But the decision was announced as previously planned on Tuesday due to "the desire to prevent a situation in which monetary policy does not respond to changes in the economy," the central bank said in a statement. 

 

Klein's critics in government and industry sectors maintained the central bank had enough inflation data at its disposal from the government's Central Bureau of Statistics to make an informed decision on interest rate levels. 

 

They charged Klein with holding back an expected rate cut to rouse public pressure against central bank workers in their four-month-old dispute. 

 

The Bank of Israel said it relied on inflation expectations derived from the capital markets and took into account an expected slowdown in economic growth compared to the country's potential gross domestic product growth rate to make the rate decision. 

 

But the central bank noted these tools "are a meager and problematic substitute to relying upon the full infrastructure for assessment which exists in the bank." 

 

"We can therefore make very limited and temporary use of them," the central bank said. 

 

Israeli GDP growth is expected to slow to nearly 2 percent in 2001 from a 6 percent surge in 2000, largely due to a U.S. economic slowdown and an eight-month-old Palestinian uprising against Israel. 

 

Since late 1999, the central bank has whittled rates in 16 monthly increments from 11.5 percent.  

 

 

© 2001 Mena Report (www.menareport.com)

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