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After Inflation Drop, Israel Lowers Interest Rates by 0.8%

The Bank of Israel has lowered interest rates by just less than 1 percent, after a drop in inflation last month.

The reduction was the third since the beginning of 1995.

Bank of Israel Governor Jacob Frenkel said the cut was made due to the continuing drop in inflation, the continuing moderation in expectations of growth in the future and the continuing stability of the money supply index.

In announcing the 0.8 percent cut, Frenkel rejected calls by industrialists for a wider reduction in interest rates.

“It is not a choice between inflation and growth,” he told Israel Television, “but rather the conviction that in order to achieve sustainable growth, we must have conditions of price stability.”

The drop in the basic interest rate to 14 percent was criticized by business leaders, who have been calling for larger cuts.

As for calls for a devaluation of the Israeli shekel, Frenkel said that against the basket of currencies, the shekel had already dropped 4 percent this year.

The drop of the U.S. dollar against the German mark and Japanese yen this year is a worldwide problem, he said, and Israel not risk the stability of its own currency by responding to the fluctuations.

The Tel Aviv Stock Exchange responded positively to the announcement. The Maof index was up by nearly 0.6 percent, while the two-sided Mishtanim index rose by a quarter of a percent.

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