Bank of Israel governor David Klein raised June key lending rates by 1% to 5.6%. "The interest rate hike is crucial to returning inflationary development to the price stability range, and in order to return financial stability in light of poor fiscal discipline, high long term interest rates and security events."
Klein lowered interest rates by 2% in December. The interest rate cut was part of a package deal with the Ministry of Finance, in which the treasury promised responsible fiscal policy and eased restrictions on the central bank regarding the issuance of short term debt certificates.
That decrease in key lending rates is one of the central factors leading to the sharp shekel devaluation from NIS 4.23 to the dollar to its current NIS 4.88. Since December, Klein has raised rates to their current 4.6%. However, capital market inflationary expectation rose as well and effective interest remained very low.