Mr. Stanley Fischer Governor of Bank of Israel Governor raised last week the lending rates on central bank sources for December, by half a percentage point, to 4.5%.The December increase is the third in as many months.
The decision to increase interest rate followed rapid depreciation of the shekel against the dollar and higher energy prices have boosted inflation. The Central Bureau of Statistics published last week alarming figures for inflation, showing that annualized inflation totaled 5.2% in August-October 2005, 2.2% higher than the 3% upper limit of the inflation target set by the government and the Bank of Israel.
In a press release the Bank of Israel said that the rate increase is intended to return the inflation rate to the middle of the government's inflation target range.
Following the announcement, analysts said that the interest rate increase lifts Israeli interest rates well above the American level. However many analysts believe that in December, the U.S. Federal Reserve will increase U.S. funds rates, to 4.25%, and follow that with a similar rate increase in January.
