In defiance of expectations, Bank of Israel Governor Stanley Fischer decided on Monday night to lower the interest rate from the current 2 percent to 1.75% in January. The goal is to bolster economic activity and growth in the Israeli economy, which has slowed down. Over the past 15 months, the Bank of Israel has lowered the interest rate six times from its September 2011 peak of 3.25%.

January's interest rate reduction follows a two-month moratorium during which Israel's interest rate remained at 2%. Fischer said that in recent months the economy had displayed real signs of weakness, and the reduction was needed to give the economy a push. It would also contribute to increasing workforce participation and lowering unemployment.

The bank’s Research Division, headed by Professor Nathan Zussman, has adjusted the overall growth forecast for 2013 upward to 3.8%, mainly due to gas production from the Tamar gas reserves. Natural gas is expected to contribute 1% to the total growth of the economy in the next year.

However, economists in the bank's research division have pointed out that gas production from Tamar will not contribute to the government's tax income and will not increase workforce participation, reduce unemployment or raise living standards. That is why the Bank of Israel made such a rapid and dramatic decision to lower the interest rate.

Not counting gas from the Tamar field, the economy's growth forecast in the next year was adjusted downward to only 2.8%, as opposed to 3% in the previous forecast.

The Bank of Israel does not fear escalating inflation at present. In November, the inflation index decreased by 0.5 percentage points and inflation currently stands at only 1.4%, at the lower end of the government's official inflation target of between 1% and 3%. The inflation rate is expected to remain the same in December. In addition, the inflation forecast for 2013 slid downward to only 1.8%, the lowest level in three years.

The Bank of Israel has also forecast that the unemployment rate will rise to 7.1% in 2013, and there will be a decrease in per capita individual consumption and a decline in imports of consumption and investment products. According to the data, overall individual consumption in the economy will grow by only 2.2% in the next year, a statistic that reflects a freeze in the standard of living. Exports are also standing in place, with exports not including diamonds set to increase by only 3.2%.