The central bank of Israel raised its benchmark interest rate by 15bps to 0.25 percent on November 26th 2018, surprising markets who expected no change. It was the first rate hike since February 2011, bringing borrowing costs to the highest since March 2015. Policymakers noted that inflation rate is stabilizing slightly above the lower bound of the target range of 1 to 3 percent. In October, annual inflation rate came in at 1.2 percent, the same as in each of the previous two months. Inflation is expected to remain within the lower bound of the target in the next months and to remain within the target in the medium term on the back of stronger wage growth and expansionary fiscal policy, while long term expectations slightly declined. Policymakers added that a sharp appreciation of the shekel is the main risk to the inflation outlook. Since the previous meeting, the currency weakened by 3.6 percent in terms of the nominal effective exchange rate. Interest Rate in Israel averaged 5.58 percent from 1996 until 2018, reaching an all time high of 17 percent in June of 1996 and a record low of 0.10 percent in February of 2015.
Interest Rate in Israel is expected to be 0.25 percent by the end of this quarter, according to Trading Economics global macro models and analysts expectations. Looking forward, we estimate Interest Rate in Israel to stand at 0.50 in 12 months time. In the long-term, the Israel Interest Rate is projected to trend around 0.50 percent in 2020, according to our econometric models.