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Middle East Economy
Israel halves rate to lowest level yet
From the Financial Times of Mon, 25 Aug 2014 16:28:37 GMT
Karnit Flug, deputy governor of the Bank of Israel, poses in this handout photo taken on Oct. 11, 2011, and released to the media on Wednesday, June 5, 2013. Flug headed the bank's research department for a decade, before being chosen by Fischer as his deputy in 2011. Photographer: Sason Tiram/Bank of Israel via Bloomberg EDITOR'S NOTE: NO SALES. EDITORIAL USE ONLY©Bloomberg

Israel’s central bank cut its benchmark interest rate to the lowest level ever, in an effort to recharge an economy slowed by the war in the Gaza Strip, which is now entering its eighth week.

The Bank of Israel’s Monetary Policy Committee, led by governor Karnit Flug, halved its rate for September to 0.25 per cent, the second successive month it has cut interest rates. The bank said economic growth was slowing even before hostilities, dubbed Operation Protective Edge by Israel, began in early July. It said further moderation of growth was expected due to the operation, part of which – particularly in relation to tourism – was “likely to last for a relatively long time”.

Israel

Tourism accounts for about 7 per cent of Israeli gross domestic product, and popular sites like Jerusalem and Tel Aviv’s beaches have emptied of most foreign visitors during the war. Tourist entries to Israel were 26 per cent lower in July than during the same time last year and retail trade declined during the fighting as people deferred purchases, the Bank of Israel said.

Bank figures show GDP growth slowed to 1.7 per cent in the last quarter measured on an annual basis, due mostly to a 10 per cent contraction in exports and investment. The rate cut took markets by surprise, and the shekel weakened on the news.

The central bank action comes amid signs that the two main parties to the conflict – Israel and the militant group Hamas – are determined to continue fighting in the longest of the three Israeli military operations fought in Gaza since 2009.

The war has killed more than 2,100 Palestinians and laid waste to swaths of Gaza. Sixty-four Israeli soldiers and four civilians have been killed. The conflict has also disrupted life in southern Israel. Hardest hit are southern border communities in the area Israelis call the ‘Gaza envelope’, where many residents have fled short-range mortar and rocket fire during the heaviest fighting.

The war has not yet achieved either of the goals set by Benjamin Netanyahu, the prime minister, at its outset: weakening Hamas and stopping rocket fire. Israel last week began targeting senior Hamas figures for assassination, and a senior minister said it would continue pursuing this strategy both inside Gaza and against its leadership in exile.

“The senior Hamas officials need to know that we are going to hunt them, reach them and make them pay the price for what they have done to the southern State of Israel,” said Yair Lapid in comments quoted by the Maariv newspaper on Monday. “No one is immune, not the political leadership, not the leadership overseas.”

The IDF said on Monday that it had targeted a rocket launcher in the al-Sheja’iya neighbourhood east of Gaza City, a focus of its assault during the war.

Hamas and other militant groups continued to fire rockets and mortars into Israel, mostly at border towns and cities in the south. The IDF said that more than 80 rockets had been fired at Israel from Gaza since midnight, and more than 800 since a ceasefire meant to allow the warring parties to discuss an Egyptian-proposed peace plan that would see fighting stop and the blockade on Gaza’s borders eased.

Egyptian officials said on Monday that they were working to secure agreement from all the Palestinian factions, including Hamas, for a new ceasefire that would allow the talks in Cairo to resume.



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