Bank of Israel Governor Stanley Fischer surprised the market Monday and raised interest sharply by 0.5% to 3.0%.
The Bank of Israel said that the decision "is consistent with the process of bringing interest back to a 'normal' interest environment that is intended to place inflation squarely within the desired range and to support continued growth while maintaining financial stability."
"The rate of raising interest is not fixed," the Bank added, "but rather depends on the inflationary environment, growth in the Israeli and global markets, as well as the monetary policy of the main central banks. It also is determined in consideration of the shekel's exchange rates."
The Bank noted that the consumer price indexes that were published in the last few months were higher than had been predicted. Inflation over the last 12 months was 4.2%, above the target rate. Inflation predictions by the Bank of Israel, experts and the market continue to be high, with inflation expected to remain above target throughout 2011 and to enter the target rate in early 2012."