Bank of Israel raises lending rate to rein in inflation

The Bank of Israel has raised interest rates to their highest level in over three years, in hopes of stanching runaway inflation.

The bank raises the rate by 0.25 percent for an interest rate of 0.35%.

“Israel’s economy has registered strong economic activity, along with a tightening labor market, amid an environment of rising inflation,” BoI says in a statement. “Therefore, the board decided conditions were ripe to begin a gradual rise in the interest rate. The pace of the rise will be decided according to statistics on activity and developments regarding inflation, in order to support achieving the state’s policy goals.”

The move, which had been widely expected, nonetheless sends stocks on the Tel Aviv Stock Exchange tumbling. The TA-35 index is down nearly 0.8% and the TA-125 is down over 1% on the day.

The rate rise comes as the US Federal Reserve is considering also ramping up rate rises.

Fed officials indicated in notes from last month’s meeting they were considering raising the US benchmark rate by double the normal amount at upcoming meetings. They also indicated they may shrink the Fed’s bond holdings, which might push up commercial borrowing rates.

Investors see “increasing evidence the Federal Reserve will take a more committed approach” to fighting inflation, said Stephen Innes of SPI Asset Management in a report.

AP contributed