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Israel's central bank raises rates most strongly in 20 years to cool inflation

Ari Rabinovitch and Steven Scheer

JERUSALEM (Reuters) – Israel’s central bank raised its benchmark interest rate by three-quarters of a percentage point on Monday, the largest increase in 20 years Further rate hikes come in an attempt to control inflation, which has already exceeded 5%.

The central bank raised its key interest rate from 1 to 2.0%. 25%, extending the tightening cycle that began in April when policymakers first raised interest rates from 0.1% to record lows at the start of the coronavirus outbreak -19 Pandemic.

Last week, when data showed that the Israeli economy grew strongly at 6.8%, the likelihood of an upward 75 basis point increased in the second quarter, despite July’s Annual inflation jumped to 5.2%, the highest level since October 2008.

Central bank policymakers said they were determined to bring inflation back within the government’s 1-3% annual target range.

The last time the Bank of Israel moved three times – a quarter point was an early rate drop 2009. Its last rate hike was in the middle of the year 2002.

“The Israeli economy is growing strongly, coupled with a tight labor market and an increased inflationary environment,” the Bank of Israel said in a statement. “The (Monetary Policy) Committee has therefore decided to continue raising interest rates.”

The bank’s own economists said they expected the key rate to peak at 2 o’clock. 75% in the second quarter of 2023. One more decision is planned for October 3 – ahead of the November 1 general election.

Inflation in Israel remains well below Western levels, but with rapidly rising prices and growing anger among Israelis, the cost of living has become a major concern for candidates ahead of the election.

“We expect another 0.5 percentage point rise on Oct. 3, which will also be influenced by the central bank’s decision to continue to raise interest rates sharply in September,” Harel Insurance and Finance Economics and research director Ofer Klein.

However, the Israel Manufacturers Association called on the central bank to stop raising interest rates in the coming months to examine the impact of previous rate hikes on Israeli credit consumption. economy.

After the interest rate decision, the shekel/dollar exchange rate was basically flat at 3.28.



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