The Israeli Shekel Is Plunging After An Unscheduled, Unexpected Rate Cut

Stanley Fischer Bank of IsraelBank of Israel Governor Stanley Fischer

The Israeli shekel is tumbling against the U.S. dollar this morning after the Bank of Israel announced an unscheduled, inter-meeting interest rate cut to 1.5% from 1.75%.

The dollar rose to as much as 3.6158 after the announcement from levels around 3.5703 right before, but is now trading around 3.6027.

The central bank was scheduled to make its next rate decision at its policy meeting in two weeks, on May 27, but the consensus expectation was that they would leave the key interest rate unchanged at 1.75%.

The Bank of Israel specifically cited appreciation of the shekel as a result of “interest rate reductions by many central banks” as one of the reasons why it couldn’t wait until two weeks from now to announce the cut.

Last week, three central banks delivered surprise rate cuts to the market: last Monday, the Reserve Bank of Australia unexpectedly lowered its key interest rate to 2.75% from 3%. Then, on Wednesday, the National Bank of Poland unexpectedly cut its key interest rate to 3% from 3.25%, and on Thursday, the Bank of Korea unexpectedly cut its key interest rate to 2.5% fom 2.75%.

The week before last, the ECB cut to 0.5% from 0.75%, and the Reserve Bank of India cut to 7.3% from 7.5%.

Bank of Israel Governor Stanley Fischer recently announced he would retire on June 30 from the top post at the central bank, a position he has held since May 2005.

The release is included below.


In light of the continued appreciation of the shekel, taking into account the start of natural gas production from the Tamar gas field, interest rate reductions by many central banks—notably the ECB, the quantitative easing in major economies worldwide and the downward revision in global growth forecasts, the Bank of Israel’s Monetary Committee reached two decisions outside the regularly scheduled framework.

  • The appreciation trend of the shekel continues. In terms of the effective exchange rate, the shekel has appreciated by 2.4 per cent in the past month, and by 5.4 per cent in the past 3 months. The shekel’s strength against the dollar and the euro during these periods stood out markedly in comparison with other currencies’ movements vis-à-vis the dollar and euro. The appreciation trend was affected by, among other things, the beginning of natural gas production from the Tamar gas field, the interest rate reductions by central banks worldwide, notably the ECB, and the continued quantitative easing programs in several major economies around the world.
  • Forecasts of global growth, in particular projections regarding Europe and China, have recently been revised downward. This moderation is expected to have an effect on Israel’s economy.

Against this background, the Bank of Israel’s Monetary Committee reached decisions outside the regularly scheduled framework. The decisions reached by the Monetary Committee are the following:

  1. To reduce the monetary interest rate by 0.25 percentage points to 1.5 per cent, effective Friday, May 17, 2013.
  2. Beginning this year, and in coming years, the Bank of Israel will purchase foreign exchange in order to offset the effect of natural gas production on the exchange rate.

The Bank of Israel notes that the inflation environment is below the midpoint of the target range and is expected to remain within the range in the coming year as well. Likewise, actions taken by the Banking Supervision Department in the past are moderating the impact of the monetary interest rate on the housing market.

The decision regarding the interest rate for June 2013 will be published at 17:30 on Monday, May 27, 2013.

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