Bank of Israel is first to raise key interest rate
The Bank of Israel raised the benchmark interest rate by a quarter of a percentage point, the first central bank to lift rates since signs of an easing in the global recession started in the second quarter.
Governor Stanley Fischer increased the lending rate to 0.75 percent, the Jerusalem-based central bank said Monday, after keeping it at a record low since March. Two of 12 economists surveyed by Bloomberg forecast the increase, while the rest expected Fischer to hold the rate steady.
The decision "strikes a balance between the need to moderate inflation and the need to continue to support the recent recovery in economic activity," the bank said. "Setting the interest rate at the low level of 0.75 percent continues to represent an expansionary monetary policy."
Fischer has been backing away from economic stimulus measures since July 27, after the inflation rate slid into the target range for only one month before rebounding back out. The Israeli, French, German and Japanese economies all returned to growth in the second quarter, prompting Fischer to say on Friday at a meeting of bank governors at Jackson Hole, Wyo., that "the first signs of global growth have appeared."
"You can read this as the first hike in the recovery cycle," said Shahin Vallee, an emerging-markets currency strategist at BNP Paribas SA in London. "Poland could be next."
Israel posted inflation rates of 3.5 percent in July and 3.6 percent in June, above the 1 percent to 3 percent target range.
"We have a picture of economic recovery right now, which you see elsewhere in the world," said Jonathan Katz, an economist at HSBC Securities who predicted the increase. At the same time, "Israel is one of the few countries in the world where inflation is running above target at three and half percent, and Fischer’s mandate is to try and bring it down between 1 and 3 percent."