The main interest rate went up half a percentage point on Monday, the central bank said in a statement, because of recent inflationary pressures.
The Bank of Israel raised the rate to 4.5 percent "to help keep inflation within the government's target price stability," between one and three percent a year, the statement said.
The interest rate was at 3.5 percent for most of the year, but since October, the central bank has been raising it month by month.
Israel's annual inflation rate reached 5.1 percent in the period of July-October, according to the financial newspaper Globes.
The Bank of Israel statement gave several reasons for the recent inflationary pressure, including world inflation, weakness of the local currency against the dollar, accelerated growth and political uncertainty.