The Bank of Israel announced Monday it was cutting interest rates to 0.1 percent, to help the coronavirus-battered economy weather the crisis. It will slash the rate by more than half from 0.25%.
The move follows other similar rate cuts in the US and around the world, which have generally caused temporary jumps in the stock market.
The rate matches the lowest ever and brings the bank back to where it was from 2015 until 2018, when it sought to spur lending to ease a housing crisis.
The bank said the crisis caused by the coronavirus pandemic has “led to a shock in capital markets in Israel and worldwide, with steep declines in equity prices and an increase in volatility and risk.”
It said GDP contracted by 5% in the first quarter of 2020, and 5% negative growth is predicted for the next quarter as well. Debt-to-GDP ratio was predicted to reach 75% in 2020.
In another move aimed at spurring lending and jump-starting the economy, the BoI announced it will offer banks three-year loans at a fixed rate of 0.1%, so long as the banks extend loans to “small and micro businesses.” Some NIS 5 billion ($1.3 billion) will be set aside for the loan scheme, the Kan public broadcaster reported.
Since the beginning of March, the government has instituted increasingly severe measures in an effort to contain a spread of the deadly novel coronavirus. Israelis have been ordered to stay at home, only venturing out for essential needs. Those who can work from home are able to continue to do so, but many of those who cannot and are not employed in essential jobs have been placed on leave without pay. As the economy has slowed down unemployment figures for the first time ever spiked past 1,000,000 at the beginning of the month, bringing the unemployment rate to 25%.
The bank said that if Israel starts to roll back restrictions by late June, the economy will likely rebound and see growth in 2021. However, it predicted that will take until late 2021 for unemployment numbers to return to pre-crisis levels of around 3.3%.
It warned that “there is considerable uncertainty regarding the forecast, in view of the lack of clarity about the length and magnitude of the crisis.”
According to figures released Sunday by the Israel National Employment Service, there are currently 1,050,000 unemployed people in the country.
Since the beginning of March some 887,283 people registered for unemployment benefits, of whom 89% are on unpaid leave, the Service said.
The coronavirus has claimed the lives of 56 people in Israel as of Monday afternoon, with over 8,600 people confirmed to be carriers of the virus.