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Bank of Israel hikes key rate 1/2-point with inflation at 14-year high

Bank of Israel hikes key rate 1/2-point with inflation at 14-year high
© Reuters. FILE PHOTO: The Bank of Israel building is seen in Jerusalem June 16, 2020. REUTERS/Ronen Zvulun

JERUSALEM (Reuters) -The Bank of Israel on Monday raised its benchmark interest rate by half a point, the seventh straight meeting at which it has increased rates to try to curb inflation that remains above 5%.

The central bank as expected lifted its key rate to a 14-year high of 3.75% from 3.25%. In April, policymakers began raising the rate from 0.1% and have been aggressive during a front-loading process, but most analysts believe the tightening cycle is close to over.

“The Israeli economy is recording strong economic activity, accompanied by a tight labor market and an increase in the inflation environment,” the central bank said in a statement.

The pace of any further rate hikes, it said, will be determined by activity data and the development of inflation, in order to attain policy goals.

The bank’s own economists expect the key rate to reach 4% in the coming year, up from 3.5% in its prior estimate in October.

Despite the rate hikes, Israel’s annual inflation rate rose to a 14-year high of 5.3% in November from 5.1% in October – well above the government’s 1%-3% annual target range and fuelling public anger at spiking living costs.

The central bank’s staff sees inflation at 3% in a year, easing to 2% in 2024.

At the same time, Israel’s economy grew an annualised 1.9% in the third quarter from the second quarter, slower than a 7.4% pace the prior three months.

Growth is expected at 2.8% in 2023, revised down from 3%, and 3.5% in 2024, according to the Bank of Israel’s updated forecast.

Source: Investing.com

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