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Bank of Israel raises interest rate highest since 2006

The Bank of Israel hiked benchmark interest rates to their highest level since 2006 on Monday, citing high inflation, and said upcoming data would determine whether it would raise them further.

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The central bank lifted the key rate for the 10th policy meeting in a row to 4.75% from 4.5 percent. The move was predicted by all 15 economists polled by Reuters.

Despite the steep tightening cycle, Israel’s annual inflation rate stood at 5% in April, near a 14-year high and well above the government’s 1-3% target range.

“Economic activity in Israel is at a high level, accompanied by a tight labor market, though there is some moderation in a number of indicators,” the Bank of Israel said in a statement announcing the policy decision. “Inflation is broad and remains high.”

The path of future interest rates would be determined by upcoming economic growth and inflation data, it added.

A weak shekel as a result of a drop in foreign inflows due to uncertainty over the government’s planned judicial overhaul, which has sparked sharp criticism at home and abroad, has contributed to the high inflation rate.

The shekel has fallen 1.5% against the dollar since the previous rate decision in early April. After Monday’s decision, it was down 0.3% against the US dollar.

Israel’s economy grew at an annualized 2.5% in the first quarter from the prior three months, and growth in 2023 is expected to ease to 2.5% from 6.5% last year.

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