Second rate hike Israeli central bank after recovery began

Second rate hike Israeli central bank after recovery began

11-24-2009 07:02

The central bank of Israel increased the lending rate, which was not only surprisingly but also the second time after the beginning of the worldwide recovery. The rate hike is the result of inflation climbing to the ceiling level of the government’s target and due to the economic expansion accelerating.

Stanley Fischer

Stanley Fischer, Governor of the Bank of Israel raised the benchmark interest rate by a quarter of a percentage point, reported the Israeli central bank this Monday. A survey among seventeen economists showed that twelve had predicted that the Bank of Israel would leave the benchmark rate unchanged, as five had forecasted the rate hike.

Rate hike

Arie Tal, chief analyst and strategist at Alumot-Sprint Investment House, commented: “The central bank Governor raised the lending rate as it doesn’t correspond with the inflation conditions. I believe that Fischer will come up with more interest rate increments next year to between 1.75% to 2% through the end of 2010.”

Central bank of Israel

The Israeli central bank Governor was the first central banker to increase the benchmark interest rate after the international economy began to recover, increasing it by a quarter point to 0.75% from the lowest level ever. After that rate hike, Fischer has persisted the key rate in an effort to create an equilibrium between reducing inflation and stimulating economic growth, the Bank of Israel stated.

Inflation

Israel's inflation climbed to 2.9% in October, in contrast to 2.8% in the previous month, the Central Bureau of Statistics reported on November 15. The chief analyst and strategist commented that the benchmark interest rate will increase to 3.7% in the next two months. The government’s yearly inflation target ranges from 1% to 3%.

Israeli growth

The Israeli economy expanded by 2.2% annually July through September, which is the largest growth in more than twelve months, while it grew by 1% in the second quarter. The Bank of Israel forecasts an economic expansion of 2.5% in 2010, in comparison to this year’s flat economic growth.
“Inflationary pressures will be boosted by rising domestic demand, fact that also backs the rate hike,” Tal added.