Bank of Israel raises interest rate to 2.0%

The Bank of Israel is raising its benchmark interest rate by 0.75% to a full 2.0%, in a bid to tamper rising inflation that has reached 5.2% over the past 12 months, the central bank says.

The rate jump comes a month after the bank raised the rate from 0.75% to 1.25% in July. It is the fourth rate jump in 2022, the first of which was in April when the central bank first raised the key rate from an all-time low of 0.1% — a minimal rate it had kept for several years and throughout the COVID-19 pandemic.

The higher rates are designed to restrict the flow of money by making borrowing less attractive, eventually dampening consumer demand, and easing inflationary pressures wrought by an undersupply of goods and an oversupply of cash.

Inflation in Israel reached 5.2% over the past 12 months, well above the bank’s upper ranges of 3% predicted by the bank in January. Inflation in the US stands at 8.5% as of July, with European zone annual inflation at 8.9% also as of July.

Israel’s Consumer Price Index — a measure of inflation that tracks the average cost of household goods like food, clothing, and transportation — rose an unexpected 1.1% in July and an annual 5.2% compared to July 2021, the fastest yearly rate in 14 years.

The newest housing report by the Central Bureau of Statistics shows that housing prices were also soaring, rising at an annual rate of 17.8% as of July, the fastest in a decade.

At the same time, Israel’s economic activity “remains strong,” according to the bank, with low unemployment and better-than-expected GDP growth of by 6.8% in the second quarter of 2022.