Bank of Israel cuts key rate by 50 bps to 3.75 pct

JERUSALEM, Oct 7 (Reuters) – The Bank of Israel lowered its key borrowing rate by a half-point to 3.75 percent on Tuesday, citing a sharp increase in uncertainty in global markets and the impact on Israel's market.
The surprise inter-meeting move takes effect Oct. 12, the central bank said in a statement.
"Since the worsening of the global financial crisis and its ramification on local markets, the chances of a slowdown in the rate of economic growth has increased lately," the Bank of Israel said.
"This rate cut acts to strengthen the ability of the economy to deal with the challenges it faces ahead," it said.
The rate cut sent Tel Aviv share indexes up 4.5 percent and benchmark 10-year bond prices up 1.8 percent. The shekel weakened to 3.52 per dollar from 3.50 prior to the announcement.
The central bank noted that inflationary pressures are expected to drop significantly due to continued declines in global commodity prices. It said inflation expectations for the next 12 months look to return to an official annual target of 1 to 3 percent.
Inflation reached an annual 5 percent in August.
The Bank of Israel said it will still hold its next policy meeting on Oct. 27 as scheduled.
In late September, the central bank kept its rate unchanged after four straight monthly quarter-point rate increases.