Israel’s central bank announced a 0.25 percentage point interest rate hike on Monday, bringing the benchmark interest rate to 4.75%, its highest level since November 2006.
In a statement, the Bank of Israel explained that the increase was meant to combat inflation. “Inflation is broad and remains high,” the bank said. “The tighter monetary policy and moderation of activity abroad are expected to lead to a slowing in the pace of inflation alongside some slowdown of economic activity in Israel.”
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To combat inflation, the Bank of Israel has been increasing the benchmark interest rate consistently since April 2022, when it was at a record low of 0.1%. But the problem of inflation has persisted. Last month, the consumer price index (CPI), an inflation indicator that measures the cost of household goods, rose at more than double the predicted rate. April’s CPI was the highest since July 2022.
The rising interest rates have put a burden on homeowners, with the average monthly mortgage cost increasing by 1,000 shekels ($274).
Speaking to Israeli media on Monday, Bank of Israel Governor Amir Yaron acknowledged the “pain” but said that the decision was necessary to avoid “double-digit inflation.”