Israel has raised its key interest rate for April by half of one per cent – the largest rate rise since before the financial crisis. Bank of Israel was one of the first central banks to begin raising rates, starting in September 2009 with a quarter point rise from a record low of 0.5 per cent. Since then, there have been eight quarter-point rises, but this is the first half-point rise. In April, the Bank’s rate will be 3 per cent.

The move is an attempt to slow the economy and housing market, and rein in inflation. Israel’s economy is expanding, “converging towards a situation of full utilization of the factors of production”. The stats would send most Western central bankers green with envy. Last year, the economy grew by 4.6 per cent, rising to an annualised rate of 7.7 per cent in the last quarter. Unemployment is about 6.6 per cent and improving. But there is concern over inflation and housing. Consumer prices are rising 4.2 per cent annually, against a target of 1-3 per cent. Even stripping out house prices, inflation is 3.5 per cent annually. And there is evidence that inflation expectations and real wages are beginning to rise, too. Meanwhile the housing market continues to boom, with prices rising 16.3 per cent in the year to February and no decline evident in the appetite for new mortgages. Read more