The Bank of Israel lowered its benchmark interest rate to 0.1% from 0.25% – its first rate cut in five years on Monday, joining other central banks in helping the economy cope with the coronavirus outbreak.
The bank's Monetary Committee's move reflects its anticipation of a global recession and reversed its decision to raise the rate from 0.1% to 0.25% in November 2018.
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The committee further decided on two additional steps: To put a new monetary instrument into operation, in order to provide loans to banks for a term of three years, and to bolster the banks' support of liquidity and the orderly functioning of the financial markets.
Explaining its decisions, the central bank said that the coronavirus crisis has undercut growth, making the economy shift into contraction. With less than 30% of the economy active at this time, private consumption has dropped by 25% compared to the pre-crisis period, and over 1 million Israelis, 24% of the workforce, are now unemployed.
The central bank last month projected an economic contraction in 2020 due to the partial lockdown stemming from the coronavirus pandemic, while Governor Amir Yaron had signaled no rate reduction is planned for now.
