The central bank’s Governor Amir Yaron announced the benchmark rate increase of 25 basis points (0.25 percentage points) to 4.75%, its highest level since late 2006.
“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,” the bank said in a statement.
“The tighter monetary policy and moderation of activity abroad are expected to lead to a slowing in the pace of inflation alongside some slowdown of economic activity in Israel,” the statement continued.
Israel’s annual inflation rate stood at 5% in April, a slight decrease from the 14-year high of 5.4% seen in January but above the market forecast of 4.7%. The government’s annual target range is 1-3%. The bank expects inflation of 3.9% this year and 2.3% next year.
The Jewish state’s economy grew faster than expected at a 2.5% annualized rate in the first quarter compared to the previous three months, which is also reflected in the tight labor market.
The unemployment rate in Israel continued to slide in April to 3.1%, compared to 3.3% in March (a seasonally adjusted drop from 3.8% in March to 3.6% in April), according to data last week from the Central Bureau of Statistics.
CBS labor data published on Monday showed that high-tech sector employment increased in April compared to the previous month (from 453,000 to 454,000).