Despite a slight improvement in inflation figures, the Bank of Israel announced on Monday it will once more raise its benchmark interest rate by 75 basis points to 2.75%, the highest in close to 11 years, further compounding the woes of loan and mortgage holders.
Already at its highest peak since January 2012, the increase in the central bank's interest rate will also fuel a jump in the prime lending rate from 3.5% to 4.25% starting Sunday, exacerbating the squeeze on debtors.
"The Israeli economy is recording strong economic activity, accompanied by a tight labor market and an increase in the inflation environment. The Committee has therefore decided to continue the process of increasing the interest rate," the bank's Monetary Policy Committee said in a statment.
"The pace of raising the interest rate will be determined in accordance with activity data and the development of inflation, in order to continue supporting the attainment of the policy goals."
According to the bank’s latest forecast, the monetary interest rate is expected to climb up to 3.5% on average in the third quarter of 2023.
In addition, Israel’s gross domestic product (GDP) is expected to grow an impressive annualized 6% in 2022 and 3% in 2023.
The inflation rate in the upcoming four quarters is expected to hover around 2.7% on average after peaking at 5.2% year on year in July. Average inflation in 2022 is expected to drop to 4.6% by the end of the year, the highest since 2002, and further cool off to 2.5% on average in 2023 — well within the central bank’s official 1%-3% annual target.
It is the fifth such hike in six months, taking the key rate to its current level from an all-time low of 0.1% in April.
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.