Bank of Israel Governor Stanley Fischer announced Monday that he would raise the primary interest rate by 0.25% for January 2010, bringing it to a level of 1.25%.
The Bank of Israel noted that inflation over the past 12 months has been 3.8%, and that after deduction of the effects of tax increases and including the products whose prices are supervised by the government, it was 2.6%.
Expectations for inflation over the coming 12 months are slightly lower than the top boundary of the prices target, and there are expectations for a rise in interest in the coming year.
The Bank also noted that the recent economic indicators regarding the Israeli market show that the process of emerging from the recession is gaining steam. Initial data from the survey of companies show an increase in activity; a manpower survey shows some decrease in unemployment; foreign trade data show a continuation of the upward trend in industrial exports; and industrial production and proceeds data also show an improvement.
The global market, too, is showing increasingly consistent signs of emergence from the recession. There is still uncertainty about the rate of the global market's recovery, contributing to the uncertainty about the strength of the Israeli recovery.
Sources in the Bank of Israel also noted that the interest rates in the central banks of leading markets are at low levels and are expected to remain so in the coming months. Raising interest by the Bank of Israel could have some effect on the shekel's exchange rate vis-a-vis other currencies.