Bank of Israel Decides to Hike Interest Rate to Battle Inflation

In recent news, the Bank of Israel has announced a rise in the benchmark interest rate by no less than 0.4 percentage points. The rate went from 0.35% to 0.75% as part of the second hike in the last two months. According to the institution, this increase is necessary to ensure that the inflation in the country tamps down. In the previous month, the central bank announced an increase in the key rate and raised it from 0.1% to 0.35%. It had been kept at an all-time low when the coronavirus pandemic had taken over the country. The rate increase in the month of April was the first instance since November of 2018 that the central bank decided to do so.

This had come after a prolonged period of low rates to ensure that the coronavirus pandemic only did minimal damage to the economy. As of now, the housing prices in the State of Israel are shooting through the roof and inflation continues to increase. Thus, the Bank of Israel has undertaken an increase in interest rate to curb the upward trend in overall prices.In the month of February, the central bank had warned that it would soon start to gradually increase the interest rate. At the time, it had cited the strong economic performance of the country alongside the coronavirus pandemic, with indications that further pointed towards continued healthy and strong activity.

In the announcement made by the Bank of Israel, it claimed that the economic activity in the country has been continuing at a strong and high level. In the words of the institution, the effect of the coronavirus pandemic on the economy has shown a significant decline. On the other hand, it added that there have been several global events that have contributed to the rising inflation across the globe, especially in the Jewish state. The statement further added that these events have prolonged the energy crisis, as well as the inflationary pressures.

The bank went on to note that the inflation in the country has readily been exceeding the target range’s upper bound, specifically 4% in the last couple of months. However, the institution emphasized that this rate is still lower than the one recorded in numerous advanced economies across the world. The Bank of Israel further pointed out that the shekel has experienced a weakened effect by no less than 4.6% when compared to the dollar. This change has come to be after the previous decision made by the central bank related to its monetary policy. According to the institution, the economy of the country has also shrunk by around 1.6% in the first quarter of this year, after it showed exemplary growth in the year 2021.

Where the labor market of the Jewish state is concerned, the Bank of Israel stated that the country is quite close to achieving full employment rates which characterized the economy before the pandemic hit. However, it highlighted that there is a shortage of employees in most industries, which has led to a reduction in operations of various businesses.