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Israel Raises Interest Rates Amid Concerns over Inflation.

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In a move aimed at curbing rising inflation, the Bank of Israel has announced a 1.5 percent hike in interest rates, the eighth such increase in the past year.

In making the announcement, Bank of Israel Governor Jacob Frenkel warned that the government must take additional steps to rein in inflation, which is currently running at about 16 percent – nearly twice the government’s initial target for 1994.

The increase will go into effect on Dec.1. The discount rate, which the central bank charges on loans to the country’s commercial banks, is expected to rise to about 18.5 percent.

Interest rates have nearly doubled during the past year. The prime rate, which banks charge to their top customers, may rise to nearly 20 percent, according to news reports here.

Reaction to this week’s rated hike was immediate, with stock prices dropping sightly Monday after posting gains of some 6 percent the day before.

In other economic news, the Knesset last week approved a controversial 10 percent capital gains tax to be imposed on Israeli investors in the stock market.

The legislation, which takes effect in January, passed 45-30, with five abstentions.

Members of the Likud opposition vowed to abolish the legislation should it come to power in the country’s next elections.

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