Bank of Israel decided to raise the interest rate in the economy by 0.4 percentage points to 0.75%


by Ifi Reporter Category:Capital Market May 23, 2022

The Monetary Committee of the Bank of Israel decided today (Monday) to raise the interest rate in the economy by 0.4 percentage points, so that the interest rate in the economy will now rise from 0.35% to 0.75%. This is the second rise in interest rates in the economy after a previous rise in April.
The relatively sharp rise, contrary to the forecasts of most economists for an increase to 0.6%, signals the intention of the Bank of Israel to fight more resolutely to moderate the rate of inflation in Israel. The last time the interest rate reached 0.75% was in July 2014, about eight years ago.
According to the Bank of Israel, "The Israeli economy is experiencing strong economic activity, accompanied by a tight labor market while rising in an inflationary environment. Therefore, the committee has decided to continue the gradual process of raising interest rates."
Raising interest rates may directly affect households. It will increase the interest payments on those who have taken out variable rate loans or mortgages, as well as increase the future loans and mortgages of households or the business sector.
The current rise in interest rates is in line with the Bank of Israel's outline for the normalization of interest rates in the economy - that is, a return to higher interest rates after more than a decade in which interest rates were close to zero. This process has now begun in light of inflation rates that reached 4% in April - a record high of more than a decade. However, economic growth data in the first quarter showed a contraction at an annual rate of 1.6% in the economy.
The Monetary Committee's decision states that activity in the Israeli economy continues "at a high level," but the war in the Ukraine strengthens inflationary pressures and leads to a slowdown in the pace of global economic activity. The Bank emphasizes that inflation in Israel at a rate of 4% still continues to be significantly lower than inflation in most developed countries, and that inflation expectations for the coming year are also in the vicinity of the upper limit of the target.
The Bank refers to the contraction in the economy in the first quarter and noted that the contraction was after a jump of 15.6% in the previous quarter, and that "a comparison of data for the first quarter of 2022 with the first quarter last year indicates a growth of about 9%." The crisis. " The committee further noted that "the labor market continues to be tight and close to the full employment that characterized the economy before the corona."
Regarding the fear of the effect of wage increases on inflation, the Monetary Committee considered that "so far, the overall wage increase rate according to the index has been adjusted, the change in composition is close to the pre-crisis trend. "Wages in the public sector are rising at a more moderate rate."
The committee also noted the rise in real estate prices and noted that "the volume of mortgages taken in April was lower than that recorded in March, and amounted to NIS 10.5 billion. However, after deducting the seasonality that characterizes April, there is no real change in the rate of high mortgage taking. At the same time, the annual rate of increase in rental prices (in renewable contracts) is 3.2%. "



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