Share prices jumped Monday on the Tel Aviv Stock Exchange after the central bank lowered interest rates by 0.7 percent.
Jacob Frenkel, Bank of Israel governor, hinted last week that he would cut rates.
But this week’s reduction was ultimately higher than expected.
With the reduction, bank lending rates were expected to drop from 17 percent to 16.3 percent.
Frenkel would not commit on whether he would order a further reduction at the end of next month, noting that inflation is still high.
The annual inflation rate is now at 15 percent, more than the 1996 target of 8 percent to 11 percent. But Frenkel said he expects the inflation rate to taper off in the second half of the year.
The Tel Aviv Stock Exchange responded positively to the interest rate reduction. Its two main indices each rose by more than 3.5 percent.
But some traders said the rise in share prices was not necessarily a direct result of the interest rate cut, but were part of a general turnaround.
The stock market has fallen by as much as 20 percent since a Likud government was elected May 29.
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