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Bank of Israel raises benchmark interest rate

“Inflation is broad and remains high. Therefore, the Monetary Committee decided to increase the interest rate,” said the central bank.

Israeli currency. Photo by Nati Shohat/Flash90.
Israeli currency. Photo by Nati Shohat/Flash90.

The Bank of Israel on Monday hiked its benchmark interest rate by 25 basis points (0.25 percentage points) to 4.5%, the highest level since 2008, in a bid to curb inflation.

“Economic activity in Israel is at a high level and is accompanied by a tight labor market, although there is some moderation in a number of indicators. Inflation is broad and remains high. Therefore, the Monetary Committee decided to increase the interest rate,” said the central bank in a statement.

“The interest rate path will be determined in accordance with activity data and the development of inflation, in order to continue supporting the attainment of the policy goals,” it added.

Inflation in Israel stands at 5.2% over the past 12 months and remains high in a wide range of CPI components. There has been some moderation in annual inflation, but the moderation is slower than previous assessments, said the BOI.

The bank forecast GDP growth of 2.5% in 2023 and 3.5% in 2024. The unemployment rate among the prime working ages (25–64) is expected to average 4.1% in 2023 and 4% in 2024. The average inflation rate in the fourth quarter of 2023 is expected to be 3.9%, and it is expected to decline to 2.3% by the end of 2024.

In addition, the debt-to-GDP ratio is expected to be about 59% in 2023 and 58% in 2024.

However, the central bank cautioned that the forecasts could be upended by economic shocks caused by opponents of the government’s judicial reform program.

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