Bank of Israel governor David Klein this evening, in a joint press conference with Prime Minister Ariel Sharon and Minister of Finance Silvan Shalom, reduced key lending rates by 2%. Effective tomorrow, Bank of Israel interest rates will be 3.8%.
Sharon said at the press conference, "The road to growth is not easy, the treatment will be painful, as it is in the rest of the world." He added that in order to encourage economic growth, the government will abstain from raising taxes.
Shalom said, "The real reason I showed up this evening is be absolutely certain that interest rates are really coming down." Shalom added thanks to Sharon, in the event Klein had needed Sharon's support to reduce interest rates. The minister of finance called on the people to go out to the malls and buy Israeli-made products to encourage economic growth.
Klein said the Tel Aviv Stock Exchange and the foreign currency exchange have expressed confidence in the economic plan. When asked about the abrupt rate reduction, he replied that "we are now in a situation that enables such a one-time rate reduction. The situation was enabled by increased fiscal discipline."
Bank of Israel explained that a one-time reduction was made possible by the government's decision to return to fiscal discipline, cutting NIS 6 billion from the state budget, and by the changes in the securities and foreign exchange markets. The central bank explained that the rate reduction is designed to support recovery from the current economic slowdown which was caused by external factors and to encourage employment, while preserving price stability.