As was anticipated by some experts, the Bank of Israel raised the interest rate by 0.5% and not by 0.25% as was the consensus earlier last month. The official interest rate now stands at a fifteen-year high of 4.25%.

The prime rate, which is relevant to the general public and businesses when taking out loans, has now risen to 5.75%. The Bank of Israel’s latest move is the eighth consecutive increase in interest rates.

Economists anticipated a 0.25% increase. However, with inflation exceeding forecasts and the shekel losing 5% of its value relative to the USD in the last month, the expectation of a more aggressive interest rate hike has grown during the last week.

The Consumer Price Index (CPI) increased by 0.3% in January, with the preceding 12-month inflation rate reaching 5.4%, the highest in 20 years.

Rafael Gozlan, chief economist at IBI Investment House, wrote in his weekly review that the increase in the inflation continues to be horizontal, and he anticipates the annual rate to moderate in the coming months to 4.5%-5%, slowing to around 3% in 2024.

In the meantime, Gazlan sees the devaluation of the shekel adding further inflationary pressure as the economic situation is being affected by the government’s decision to proceed with the legal reform and its plans to increase spending. 

The next interest rate decision will be made on April 3.