The Bank of Israel Monetary Committee, headed by Governor Prof. Amir Yaron, has decided on an interest rate rise of 0.4% from 0.35% to 0.7% - a more aggressive rise than it had previously indicated it would implement.
The rise is at the higher end of the analysts' expectations and comes despite the first quarter GDP growth figures, which showed the economy shrinking and raised concerns of a slowdown. The Bank of Israel has raised the rate due to concerns about inflation, which has been running at 4% over the past 12 months, the highest rate in more than a decade, and above the high-end of the annual target range of 1%-3%.
The Bank of Israel said, "Inflation in Israel is exceeding the upper bound of the target range, at 4% over the past 12 months. With that, it remains significantly lower than in most advanced economies.
One-year inflation expectations are around the upper bound of the target range. Longer-term expectations remain anchored within the target range."
This is the first time in a decade that the Bank of Israel has raised the interest rate in two successive months, after last month it raised it by 0.25% to 0.35% from its historic low of 0.1% - the first interest rate rise since 2018.
Commenting on slowdown concerns, the Bank of Israel observed,
"Economic activity in Israel is continuing at a high level. Indicators of economic activity continue to show levels close to potential, and the pandemic’s effect on the economy has declined significantly. However, the war in Ukraine and the lockdowns in China are increasing inflationary pressure, and leading to a slowdown in the pace of global economic activity."
Published by Globes, Israel business news - en.globes.co.il - on May 23, 2022.
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