Bank of Israel raises interest rate to 2.5%

The BOI decided to raise the interest rate by a quarter point to get the country's inflation rate back on target. Israel's annual inflation rose to 2.7% in 2010
 
Governor of the Bank of Israel (BOI ) Prof. Stanley Fischer announced last Monday that the benchmark lending rate will be increased by 25 basis points from 2% to 2.5% percent.
 
The BOI decided to raise the interest rate by a quarter point to get the country's inflation rate back on target. Israel's annual inflation rose to 2.7% in 2010, with the Consumer Price Index (CPI) increasing 0.4% from November 2010 to December 2010.
 
Inflation in the coming year is seen at 3.5 percent, remaining above the government's annual inflation target of 1 to 3 percent. "The upward trend in inflation expectations for the longer term derived from the capital market persists," the central bank said in a statement, noting monetary policy was still expansionary.
 
Following the BOI announcement, the shekel strengthened against the dollar, dropping to NIS 3.6040/$ compared to NIS 3.6170/$ earlier in the day.
 
Last week, the Central Bureau of Statistics reported that Israel's GDP grew in the fourth quarter of 2010 at an annualized pace of 7.8%, and earlier it was reported that the Consumer Price Index (CPI) rose by an unexpectedly high 0.2% in January, bringing inflation over the past twelve months to 3.6%, above the 1-3% target range.