The Bank of Israel increases the benchmark interest rate for the seventh straight meeting, raising its key lending rate by half a percentage point to 3.75%, the highest level since 2008, as the central bank steps up efforts to tame rising inflation in recent months.
The Bank of Israel’s monetary committee decides to lift the benchmark rate to 3.75% from 3.25%, in line with most economists’ forecasts. Since policymakers started to raise borrowing costs in April from an all-time low of 0.1%, the key lending rate has increased by more than 3.5 percentage points in eight months as the Bank of Israel seeks to bring inflation back into the government’s 1% to 3% target range. Meanwhile, inflation has accelerated to 5.3% as of November over the preceding 12 months, led by spiraling housing and food costs.
The Bank of Israel cites strong economic activity, a tight labor market and the rising inflation environment as the main reasons for lifting the key lending rate. In its statement, the central bank notes that housing prices have increased at a significantly higher rate in the past 12 months. Meanwhile, the number of construction starts and permits remains higher than in the past, and the number of home purchase transactions and the volume of mortgages taken out continues to decline, the Bank of Israel says.