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The Bank of Israel cut its benchmark lending rate half a percentage point to the lowest ever as it seeks to limit the impact of the slowing global economy and curb the shekel's appreciation.

The rate charged to commercial lenders was reduced to 3.25 percent, a spokeswoman for the Jerusalem-based bank said today. Seven out of 13 economists surveyed by Bloomberg had forecast a drop of half a point, while the rest were split evenly between those expecting a reduction of a quarter point, three quarters of a point and no change.

The latest economic forecasts point to a “more severe slowdown'' in the U.S. and other economies, the bank said in an e- mailed statement today, explaining its decision. It also cited the effect of the stronger shekel on curbing inflation and the need to keep the gap between domestic and U.S. rates from widening.

The cut was the second half-point reduction in as many months. Governor Stanley Fischer said in an interview last week that economic growth will probably ease to between 3.5 percent and 3.6 percent this year, down from 5.3 percent in 2007, to its slowest pace in five years.

Government Target

While the consumer price index has exceeded the government's target of 1 percent to 3 percent during the last three months, the bank's monthly survey of economists released last week forecasts inflation to slow to 2.4 percent in the next 12 months, helped by the appreciation of the shekel.

Fischer “is giving more emphasis to economic growth and less to inflation,'' said Ptachia Bar-Shavit, economist at Rehovot, Israel-based Financial Immunities Ltd. He forecast inflation at 2.5 percent to 2.6 percent this year paydayloans faxless payday advance.

The 12 percent appreciation of the shekel during the past 14 weeks will help cool inflation because home prices are linked to the dollar. The Israeli currency, which reached 3.3531 on March 13, its strongest against the dollar in 11 years, traded at 3.5200 at 6:55 p.m.

The shekel has shed about 5 percent after the central bank bought dollars March 13 and 14 — the first time since 1997 that it entered the forex market to influence the exchange rate. The Bank of Israel said March 20 that it would start buying dollars at a rate of $25 million a day to help increase reserves by as much as $12 billion over the next two years to $40 billion.

Fischer “was right not to relate too much to the shekel depreciation the last few days,'' Bar-Shavit said by telephone.

Fischer was probably concerned about further rate cuts by the U.S. Federal Reserve, which on March 18 lowered its target rate by three-quarters of a point to 2.25 percent, Bar-Shavit said. The Fed may cut rates again, which Fischer will try to match to keep the differential at 1 percentage point, Bar-Shavit said.

The yield on the government's Shahar bond due in 2016 traded at 5.57 percent today before the decision. It fell as low as 5.32 percent March 20, it lowest since last July.

The bank increased rates three times in the second half of last year, raising it by a total of three-quarters of a percentage point after a depreciation of the shekel and higher world commodities prices creating a surge of inflation.

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