Bank of Israel hikes interest rate again, this time by 0.25%

The Bank of Israel raised the national interest rate on Monday by 0.25%, up to 4.5%, the highest the rate has been since December 2006. This marks the ninth consecutive raise in a long-fought effort to curb the country’s steepening inflation rate.

Just last month, the bank raised the interest rate by 0.5%, bringing it up to a 15-year high of 4.25%.

“Inflation in Israel is 5.2% over the past 12 months, and is 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 Bank of Israel, which went on to note its confidence that its 1-3% inflation rate target is attainable within the coming year.

“Inflation expectations and forecasts for the first year from all sources increased, and are around the upper band of the target range. Expectations derived from the capital market for the second year onward are all within the target range,” said the BoI.

The latest increase is expected to impact thousands of mortgage holders’ efforts to meet their monthly loan repayments, which have already increased for many by hundreds of shekels and even over a thousand shekels per month.

The interest rate hike will make the repayment of interest on mortgages more expensive by NIS 70 per month – since the recent string of increases began, that cost has gone up by NIS 1,100.

In an OECD report on Israel’s economy released Monday morning, the organization noted that the BoI would be wise to play things carefully amid consistently rising inflation.

Maintaining a tight monetary policy stance is warranted

“With inflation above target and domestic demand robust, maintaining a tight monetary policy stance is warranted. The central bank has signaled that the pace of further interest hikes will be determined based on inflation and activity developments,” read the report.

“If underlying inflationary pressures become more pronounced, the central bank could also actively reduce its balance sheet in combination with further policy rate increases,” it added.