Bank of Israel Governor Stanley Fischer surprised the market's movers and shakers Monday and announced a decision to raise the prime rate by 0.25% to 0.1%.
This is the second time that Fischer has raised the prime rate since it reached a low of 0.5% in the aftermath of the recent global economic crisis.
He is the first central bank governor in the western world to adopt a policy of interest rises in the wake of the crisis. US Federal Reserve Chairman Ben Shalom Bernanke made clear last week that the interest rate in the US will remain at its current low level for a long time.
The Bank of Israel explained that the decision to raise the prime rate for December by 0.25% supports the stabilization of inflation within the desired range, looking 12 months ahead, after the effects of the government's one-time price hikes dissipates.
Sources at the bank added that national accounting figures for the third quarter show recovery in the market activity, mirroring a significant rise in private consumption, exports and investments. The recent climb in exports is based on the recovery worldwide.