The Bank of Israel has raised its benchmark interest rate by a quarter of a percentage point for the ninth consecutive meeting in a bid to combat inflation. The move comes as inflation in the country remains above 5%.
The decision to raise interest rates follows a similar move by the US Federal Reserve, which increased interest rates to combat inflationary pressures. The Bank of Israel has been raising rates steadily since March 2021, when inflation first began to rise.
The Bank of Israel’s decision to raise interest rates is aimed at reducing the amount of money in circulation and making borrowing more expensive, which in turn should reduce demand for goods and services and lower inflation.
The latest move takes the interest rate from 1.25% to 1.5%, which is the highest level since 2014. The Bank of Israel has been under pressure to act to combat inflation, which has been driven up by a surge in global commodity prices and the reopening of the economy following the COVID-19 pandemic.
H2: Inflation remains high in Israel
Inflation in Israel has remained above 5% for several months, well above the central bank’s target range of 1-3%. The high level of inflation has been driven by rising energy and housing costs, as well as supply chain disruptions caused by the pandemic.
The Bank of Israel has been warning for months that inflation could persist for longer than expected, and that it could require further rate hikes. The latest move to increase interest rates is part of its ongoing effort to keep inflation in check and bring it back within its target range.
Impact on the economy
The decision to raise interest rates is likely to have a significant impact on the Israeli economy. Higher interest rates will make it more expensive for businesses and consumers to borrow money, which could slow down economic growth and reduce demand for goods and services.
However, the move is expected to have a positive impact on the shekel, which has been under pressure due to the high level of inflation. A stronger shekel could help to reduce the cost of imports and provide some relief to consumers, who have been hit hard by rising prices.
The Bank of Israel has signaled that it is prepared to continue raising interest rates if necessary in order to combat inflation. However, it has also emphasized that it will take a gradual approach and monitor the impact of its actions on the economy.
The central bank has also noted that the global economic outlook remains uncertain, and that it will need to be vigilant in order to respond to any unexpected shocks.
Overall, the Bank of Israel’s decision to raise interest rates is a reflection of its ongoing commitment to combat inflation and maintain economic stability.