JERUSALEM (Reuters) -The Bank of Israel on Monday raised its benchmark interest rate by another quarter of a percentage point, the ninth straight meeting it has increased rates amid a battle against inflation that remains above 5%.
“Economic activity in Israel is at a high level, and is accompanied by a tight labour market, although there is some moderation in a number of indicators,” the bank said in its decision.
The central bank lifted its key rate to 4.5% – its highest level since 2007 – from 4.25%. Last April, policymakers began raising the rate from 0.1% and have been aggressive during a front-loading process, but most analysts believe the tightening cycle is close to over.
Despite the rate hikes, Israel’s annual inflation rate stood at 5.2% in February, slightly lower than a 14-year high of 5.4% in January but well above the government’s 1%-3% annual target range.
At the same time, Israel’s economy grew a faster than expected 6.4% in 2022, although growth is expected to slow to below 3% this year amid the steep rate hikes.
The Bank of Israel’s research department forecast that GDP was expected to increase by 2.5% in 2023, down from a previous estimate of 2.8%, and kept its forecast of 3.5% growth in 2024.
It forecast inflation for the coming year to be 3.4%, compared with a previous forecast of 3%, and the interest rate for one year from now reaching 4.75%, versus a previously estimated 4%.
A Reuters poll had found that 11 of 12 economists had expected a 25 basis points move, while one foresaw a 50 basis point hike.
(Reporting by Maytaal Angel, Henriette Chacar and Ari Rabinovitch;Editing by Andrew Cawthorne)
