The central bank of Israel cut its policy interest rate by 25 basis points to 2.0 percent, its third rate cut this year, to bolster economic growth while inflation has eased to the midpoint of the bank's target.
But to restrain the growth in housing credit, the Bank of Israel (BoI) limited the loan-to-value ratios to keep home prices from raising too fast.
The BoI, which has cut rates by a total of 75 basis points this year, said Europe's debt crises continues to be the main risk to the global economy and recent data showed that growth in Israel's economy had moderated to a rate of around 3 percent, in line with the bank's forecast from last month of Gross Domestic Product growth of 3.3 percent this year and 3.0 percent in 2013.
"Against the background of the debt crisis in Europe, the level of economic risk from around the world remains high, and with it the concerns over negative effects on the local economy," the BoI said in a statement.
In the second quarter, Israel's economy expanded by 3.10 percent annual rate while the September annual inflation rate rose to 2.1 percent from 1.9 percent. The BoI targets inflation of 1-3 percent.