The bank linked the rate increase decision to the rise in inflation in Israel, which has reached 4.1 percent over the past 12 months, while the government has set an inflation target of 1 to 3 percent.
Home prices in Israel increased by 15.4 percent in the past 12 months alone, the bank noted.
"We are determined to return the inflation rate to within the target," said Bank of Israel Governor Amir Yaron.
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