Bank of Israel Raises Interest Rate to Decade-High Levels

On Monday, the Bank of Israel raised benchmark interest rates to their highest level since 2006, citing concerns about high inflation. The central bank indicated that any further increases would depend on upcoming data.

In its 10th consecutive policy meeting, the central bank decided to raise the key rate to 4.75 percent from 4.5 percent. This move was in line with the projections of all 15 economists surveyed by Reuters.

Israel’s annual inflation rate remained at a stubborn 5 percent in April, hovering near a 14-year peak and significantly surpassing the government’s preferred 1-3 percent target range despite efforts to tighten monetary policy.

“Economic activity in Israel is at a high level, and is accompanied by a tight labour market, although there is some moderation in a number of indicators,” the Bank of Israel said in comments on the policy decision. “Inflation is broad and remains high.”

The future interest rate path would be determined by upcoming economic growth and inflation data, it added.

A weak shekel, stemming from a drop in foreign inflows due to uncertainty over a judicial overhaul planned by the government that has prompted sharp criticism at home and abroad, has partly contributed to the high inflation rate.

Since the prior rates decision in early April, the shekel weakened 1.5 percent against the dollar. It was 0.3 percent lower against the dollar after Monday’s decision.

Israel’s economy grew at an annualised 2.5 percent in the first quarter from the prior three months, and growth in 2023 is expected to ease to 2.5 percent from 6.5 percent last year.