The Bank of Israel Monetary Committee, headed by Governor Prof. Amir Yaron, has raised the interest rate by 0.5% to 1.25%, as expected, in order to combat rising inflation, which has reached nearly 5% over the past year in Israel. This is the first time that the Bank of Israel has announced a 0.5% rate hike since 2011.
This is the third rate hike made by the Bank of Israel over the past four months, after raising the rate from its historical low of 0.1% to 0.35% in April, and then by a further 0.4% to 0.75% last month.
The Bank of Israel sees the interest rate rising to 2.75% by the second quarter of 2023, among other things, due to the rises in interest rates around the world.
The Bank of Israel research department has revised its 2022 GDP growth forecast downwards by 0.5% to 5%, following the Israeli economy's unexpected contraction of 1.9%, in annualized terms, in the first quarter of 2022. This forecast is in line with the OECD's forecast for growth in the Israeli economy. The Bank of Israel sees Israel's economy growing by 3.5% in 2023.
The Bank of Israel sees an inflation rate of 4.5% in 2022, but falling to 2.4% in 2023, back within its annual target range of between 1% and 3%.
The Bank of Israel noted that since its previous interest rate decision, the shekel has weakened by 5.1% against the US dollar, by 2.9% against the euro, and by 3.6% in terms of the nominal effective exchange rate.
On housing prices the Bank of Israel said, "Home prices increased by 15.4% in the past 12 months, a significantly higher rate than in past years, but the sharp upward trend of annual price increases moderated slightly."
Published by Globes, Israel business news - en.globes.co.il - on July 4, 2022.
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