Bank of Israel raises interest rate to highest level since before 2008 crash

The Bank of Israel has lifted the benchmark interest rate for the ninth straight meeting, raising its key lending rate by 25 basis points to 4.50 percent, the highest level since 2007, as it battles inflation pressure and uncertainty over the government’s judicial overhaul plan.

“Economic activity in Israel is at a high level, and is accompanied by a tight labor market, although there is some moderation in a number of indicators,” the central bank said.

The central bank’s monetary committee decided to raise the benchmark rate to 4.50% from 4.25%, the smallest increase since April 2022. The hike mirrored the US Federal Reserve, which raised interest rates by a quarter of a percentage point last month amid global financial turmoil following the recent collapse of two US banks.

BoI’s decision comes after inflation quickened at a faster rate than forecast in February and as uncertainty over the repercussions of the proposed changes to the legal system led to a dampening of investor sentiment and a slowdown in investments.

In addition, the Bank of Israel Research Department revised its macroeconomic forecast, and presented two potential scenarios in view of what it said was the “tremendous” uncertainty due to the proposed changes to the judicial system and their economic implications.