In a surprise move, Israel’s central bank has raised its key lending rate for the first time since 2011, increasing the rate by 0.15 percentage points to 0.25 percent, after leaving it unchanged at 0.1 since 2015.
The decision was taken by the bank’s monetary committee, led by the deputy governor Nadine Baudot-Trajtenberg, who is currently acting as the chief of the central bank. The new upcoming Bank of Israel governor, Amir Yaron, will take up his post on December 24.
“After a continued rise in inflation since the beginning of 2018, the inflation rate is stabilizing slightly above the lower bound of the target range, and is expected to remain within the target in the coming months as well,” the central bank announced in a statement.
“An analysis of the data and of updated indicators of economic activity leads to the assessment that the economy is converging to its potential growth rate. In the second and third quarters, there was some slowdown in the economy’s growth rate, but current indicators of activity support the assessment that the economy is at full employment, and in particular, the tight labor market data indicate a high level of demand.”
Just two of the 12 economists surveyed by Reuters had forecast a rate hike, while 10 said they expected the rate to remain unchanged at 0.1 percent, Reuters said.
Tel Aviv based Meitav Dash Brokerage had also forecast the rate to remain unchanged.
“It’s a surprise move especially since the new governor of the Bank of Israel has not yet taken up his post,” said Saar Golan, a trader at Meitav Dash, by phone. The central bank’s reasons for the hike, he said, were the fact that inflation is within the central bank’s target range of 1%-3%, and the economy is at full employment.
The impact of the hike was already being felt in the Tel Aviv Stock Exchange, said Golan, with bank shares gaining. The banks will be the companies to benefit the most from the rise in rates. The shares of highly leveraged firms, however — such as real estate companies and holding companies — were dropping.