Bank of Israel to raise interest rate for the sixth time since April

To combat the ever-rising rate of inflation — which was last recorded at 5.1% as of October — the Bank of Israel will raise its interest rate on Monday.

 The Bank of Israel building is seen in Jerusalem June 16, 2020. Picture taken June 16, 2020.  (photo credit: REUTERS/RONEN ZVULUN/FILE PHOTO)
The Bank of Israel building is seen in Jerusalem June 16, 2020. Picture taken June 16, 2020.
(photo credit: REUTERS/RONEN ZVULUN/FILE PHOTO)

The Bank of Israel raised its interest rate by 0.5% on Monday in an effort to combat rising inflation. The new rate, 3.25%, was the sixth hike in a recent series of increases carried out by the BOI since April, when it was at a record low of 0.1%

Consistently rising inflation surpassed 5.1% in October, the Central Bureau of Statistics reported.

Inflation in Israel

“Inflation in Israel has still not reached its peak,” Psagot Investment House chief economist Guy Beitor said, adding that, according to the October statistics bureau report, food and housing prices are continuing to climb, Globes reported.

The heavy inflation has led the central bank to increase the interest rate in the hope that a steeper rate will lead to less borrowing, which would in turn lead to less inflation. However, a steeper interest rate may have other less-appealing consequences as well.

As the economy slows down, due in part to less borrowing, the business market has already begun to stall. This has likely contributed to the widespread wave of hi-tech industry layoffs that has plagued the start-up nation since March.

 Israeli money bills. (credit: PIXABAY) Israeli money bills. (credit: PIXABAY)

Shortly after his appointment as head of the temporary Knesset Finance Committee, United Torah Judaism MK Moshe Gafni announced his intention to “hold an extensive discussion on the matter as soon as possible,” specifically highlighting the issue of higher mortgage payments for holders.

Did the Bank of Israel react too late?

Dobi Amitai, chairman of the Presidency of the Business Sector, said the central bank’s reaction to the nation’s economic concerns was sluggish.

“The Bank of Israel reacted late, aggressively and without an up-to-date economic plan,” he said.

Amitai criticized the bank’s seeming lack of wider strategy in handling the current economic unrest.

“The Bank of Israel has two roles: to ensure price stability while meeting the goal that inflation does not exceed 3%; and to act as an economic adviser to the government and submit recommendations for appropriate fiscal policy,” he said.

“Since the rise in inflation began, and in the many [following] months, the Bank of Israel has not published a plan of recommendations to the government on taking fiscal measures, which are required to curb inflation and create price stability in the economy,” he added.

Amitai criticized the central bank’s apparent one-size-fits-all approach to the issue.

“Using only the tool of raising interest rates is not a serious [operating] plan for the economy,” he said.