Israel's M1 money supply increased 1.4% in May to NIS 32.7 billion, after dropping by 1.8% in April, the Bank of Israel said on Sunday.
The April decline was the first since November 2001.
Over the past 12 months, M1 has risen 23.4%. Money supply, along with the consumer price index, is a key indicator used by the central bank in setting monetary policy. The Bank of Israel said market expectations for inflation over the next 12 months jumped to 4.5% in May, after rising to 3.4% in April from 2.4% in March. Despite the 1% rise each month, capital market sources say they expect inflation to die down again in the years to come.
The average forecast for inflation over the next 12 months among the banks and economic consultancies is 3.4%, lower than the capital market estimates and near the level of price stability. The Bank of Israel inflation target is 1% to 3%.
On Monday the Bank of Israel will be announcing interest rates for July. Governor David Klein is expected to boost the rates by 1% to 1.5% because of the depreciation of the shekel against the dollar.