The Bank of Israel announced this week that it would lower its interest rates by 0.5 percent for January.
The bank also said Monday that it would continue its strict monetary policy to help the government reach its target rate of annual inflation: 7 percent to 10 percent.
Including the latest cut, the interest rate will drop to 14.7 percent, the lowest rate in the past nine months.
Commercial banks were expected to lower their interest rates by 0.5 percent later this week.
An additional cut in interest rates may come in January if the Knesset approves the 1997 budget as part of the Economics Arrangements Law.
A marathon debate began Monday on the bill, which details government spending for the next year.
The Knesset Finance Committee approved Sunday a version of the bill that does not include reductions in child allowances for middle- and upper-income families, as the government had originally planned.
Instead, tax hikes will take place on items that include cigarettes and gasoline.
The Israeli government had already approved spending cuts of about $2 billion in the $64 billion budget for 1997, but backed down from planned cuts in social spending in order to secure Knesset approval.
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