The Bank of Israel’s Monetary Committee decided Monday (Feb. 20) to increase the interest rate by 0.5 percentage points to 4.25 percent.
“Inflation over the preceding 12 months is above the upper bound of the target, overshoots for a wide range of components, and is 5.4 percent,” the Bank noted.
“Inflation expectations for all terms are within the target range.”
According to the Bank, 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 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,” the Bank said.
Israel’s GDP grew in 2022 by an accelerated rate of 6.5 percent, and for the last five quarters its level has been above the pre-crisis trend line. The GDP growth in the fourth quarter was impacted, to a large extent, by a transitory sharp increase in vehicle purchases at the end of 2022.
“The labor market remains tight and is around full employment, but in recent months there has been some moderation in various employment data,” the Bank noted.
Home prices continued to increase, but for the past several months the rate has been at a more moderate pace. The number of home purchase transactions and the volume of mortgages taken out is continuing to decline. Rents are continuing their upward trend.