Israel’s economy expanded at the slowest pace in more than a year in the second quarter as exports plunged, fueling speculation that the central bank may cut interest rates again to revive growth.
Gross domestic product grew 1.7 percent, compared with a revised rate of 2.8 percent in the first three months of the year, the Central Bureau of Statistics in Jerusalem said today in an e-mailed statement. Exports tumbled 17.7 percent in the second quarter after rising 0.1 percent in the first and 26 percent in the last three months of 2013.
The slowdown “is another point supporting the low interest rate, and maybe even another cut,” said Ori Greenfeld, chief economist at Psagot Investment House Ltd. in Tel Aviv. “The Bank of Israel apparently will cut again, maybe not in the next few months, but there is room for another cut.”
The Bank of Israel unexpectedly cut its benchmark interest rate on July 28 to 0.5 percent, the lowest in five years, in part on concern that the military offensive against militants in the Gaza Strip, which escalated last month, may hurt economic growth. Manufacturers have called on policy makers to help exporters by cutting the base rate to zero and buy enough dollars to keep the shekel at 3.8 to the dollar.
The shekel has risen 2.4 percent against the dollar in the past year, making it the seventh-best performer in a basket of 31 major currencies Bloomberg tracks. One-year interest rate swaps, an indicator of traders’ rate expectations in the period, fell two basis points last week to 0.48 percent.
The yield on benchmark government bonds due March 2024 fell 3 basis points, or 0.03 percentage point, to 2.63 percent at the close in Tel Aviv today.
Bank of Israel Deputy Governor Nadine Baudot-Trajtenberg said in an interview July 29 that the surprise rate cut may not be the last in the current cycle. While policy makers see no present need to cut borrowing costs further, “in principle there is still more room,” Baudot-Trajtenberg said.