Israel's M1 money supply rose 2.0% to 28.3 billion shekels in August following a 3.0% rise in July, the Bank of Israel said on Sunday.

M1, which rose 0.9% in August 2000, has soared by 16.2% in the past 12 months, the central bank said.

Along with the consumer price index (CPI), money supply is a key indicator used by the central bank in setting monetary policy.

The Bank of Israel said market expectations for inflation 12 months out rose to 2.9% in August from the 2.1% forecast in July and 1.8% forecast in June. The forecast remained in line with the government's 2.5% to 3.5% target rate.

On Friday, the Central Bureau of Statistics reported August's CPI rose by 0.3%, which was in line with analysts' expectations, and inflation is running at an annual rate of 2.7% to 3.0%.