Bank of Israel raises interest rate to 2% in steepest one-time hike in 20 years

In a bid to tackle racing inflation, rate hike brings central bank's key rate to its highest level since December 2012, dealing particularly painful wallop to mortgage and loan holders

Gad Lior|
Coming off another alarming inflation report in July, the Bank of Israel announced on Monday it will raise its benchmark interest rate by 0.75% to a full 2%, the steepest one-time hike in 20 years, in a bid to blunt fast-rising inflation that has reached 5.2% over the past 12 months.
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  • This hike, which brings the central bank's interest rate to its highest level since December 2012, deals a particularly painful wallop to mortgage and loan holders as the prime lending rate will jump to 3.5% starting Thursday, more than double its level in April.
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    בנק ישראל בירושלים
    בנק ישראל בירושלים
    Bank of Israel in Jerusalem
    (Photo: Reuters)
    It is the fourth rate jump in as many months, increasing the key rate twentyfold in total from an all-time low of 0.1% in April.
    "The Israeli economy is seeing strong economic activity, accompanied by a tight labor market in a rising inflationary environment," a statement issued by the central bank read.
    "That is why the [Monetary C]ommittee decided to continue the process of raising the interest rate. The scale of the interest rate increase will be determined according to the activity data and the development of inflation, this in order to continue and support the achievement of policy goals."
    With these successive rate increases, the Bank of Israel is seeking to restrict the economy's money supply by making borrowing less attractive and cutting high consumer demand.
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    אילוסטרציה: כסף
    אילוסטרציה: כסף
    (Photo: Shutterstock)
    Last week, the Central Bureau of Statistics (CBS) reported that the consumer price index in Israel rose by 1.1% in the month of July, bringing the country's annual inflation rate to 5.2%, well over the central bank's upper inflation target of 3%.
    Housing prices increased by 2% between May and June 2022, completing a whopping 17.8% increase compared to the same time last year.
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