Bank of Israel raises interest rate to 2% in biggest one-time hike in 20 years

Following another alarming inflation report in July, the Bank of Israel announced on Monday that it would raise its benchmark interest rate by 0.75% to 2%, the biggest one-time hike in 20 years, in the aim of mitigating the rapidly rising inflation which has reached 5.2% over the past 12 months.

This hike, which takes the central bank’s interest rate to its highest level since December 2012, is inflicting a particularly painful blow on holders of mortgages and loans since the key rate will jump to 3.5% from Thursday, more than double its April level.

This is the fourth rate jump in as many months, multiplying the key rate by twenty in total from a historic low of 0.1% in April.

“The Israeli economy is experiencing strong economic activity, accompanied by a tight labor market in a rising inflationary environment,” said a statement released by the central bank.

“That’s why the [Monetary C]The committee decided to continue the process of increasing the interest rate. The magnitude of the interest rate hike will be determined based on activity data and the evolution of inflation, in order to pursue and support the achievement of policy objectives.”

With these successive rate hikes, the Bank of Israel seeks to restrict the money supply of the economy by making borrowing less attractive and reducing strong consumer demand.

Last week, the Central Bureau of Statistics (CBS) reported that Israel’s consumer price index rose 1.1% in July, bringing the country’s annual inflation rate to 5.2. percent, well above the central bank’s upper inflation target of 3 percent. .

House prices increased by 2% between May and June 2022, completing a huge increase of 17.8% compared to the same period last year.

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