Unexpected rate cuts by the Bank of Israel

Bank of Israel Unexpectedly Cuts Rate, Sets Mortgage Limits

By Alisa Odenheimer – Oct 29, 2012 4:05 PM GMT+0000

The Bank of Israel unexpectedly cut its benchmark interest rate amid concern over the growth of housing credit and a slowing economy.

The monetary policy committee, led by Governor Stanley Fischer, cut the rate by a quarter-point to 2 percent, the Jerusalem-based bank said on its website today. None of the 24 economists surveyed by Bloomberg predicted the decision.

“It’s the Fischer effect,” said Tevfik Aksoy, an economist at Morgan Stanley. “He does this every once in a while, when nobody expects it.”

The Bank of Israel has gradually reduced the borrowing rate from 3.25 percent in September 2011 in an effort to shore up the economy amid the European debt crisis and global slowdown. Growth is expected to slow to 3.5 percent this year, from 4.6 percent last year, according to the Jerusalem-based Central Bureau of Statistics.

The Bank of Israel also released, together with the rate decision, new draft directives aimed at cooling the mortgage market, which are expected to go into effect on Nov. 1. The directives limit mortgages to 70 percent of the value of the home, with the exception of new home buyers, who will be permitted to borrow up to 75 percent.

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