The Bank of Israel raised its benchmark interest rate (ILINR=ECI) by half a point on Monday, and will likely continue its increases a bit more in coming months, saying it seeks to curb inflation running above 5%.
The central bank as expected lifted its key rate to a 14-year high of 3.75% from 3.25%. In April, policymakers began raising the rate from 0.1% and have been aggressive during a front-loading process, but most analysts believe the tightening cycle is close to over.
Bank of Israel Governor Amir Yaron said monetary policy was already “restrictive” but expressed concerns over inflation, even though it is lower than in much of the West. The labour market is tight and the new government is set to spend heavily to meet coalition agreements.
While the central bank’s own economists project the key rate at 4% in a year’s time – meaning there would be just one more quarter-point hike – Yaron could not commit to that peak.
Speaking to reporters, he said the pace of hikes would continue to be data dependent. “We won’t hesitate to raise rates further,” Yaron said, adding he expects inflation to start easing in the second quarter. “I believe that interest rates in general will have to remain at a high level.”