Israel's M1 money supply increased 1% in June to NIS 32.8 billion, an all-time record, the Bank of Israel said on Tuesday.

The money supply had risen 1.4% in May after dropping by 1.8% in April. The April decline had been the first since November 2001.

Over the past 12 months, M1 has risen 21.9%, the central bank said. For the half-year, the money supply grew 12.3%. The high level attests to the high degree of uncertainty among the public, which is keeping large amounts in readily available cash instead of putting it into long-term savings.

The Bank of Israel said market expectations for inflation over the next 12 months jumped to 5% in June, after rising to 4.5% in May from 3.4% in April. Despite the rise each month, capital market sources say they expect inflation to die down again in the years to come.

Money supply, along with the consumer price index, is a key indicator used by the central bank in setting monetary policy.