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Interest Rates Rise As Israel Vows to Make Cuts in Its Budget

The Jewish state’s new government will make cuts in its budget but will not raise taxes in order to reduce the budget deficit, Jacob Frenkel, governor of the Bank of Israel, said this week.

Frenkel’s announcement Monday coincided with the bank’s announcement that it would raise July interest rates by 1.5 percent.

Frenkel, who was appointed for another five-year term as Bank of Israel governor, was also made head of Prime Minister Benjamin Netanyahu’s economic council.

The bank said raising interest rates was the best way to combat inflation until the economic policy of the new government is established.

High increases in the monthly cost-of-living index have put the estimated 1996 annual inflation rate at more than 14 percent, which is beyond the range set by the previous government.

Israel had sought a second year of single-digit inflation. Inflation was 8.1 percent in 1995.

Israel’s growing trade deficit reached $2.97 billion in the first quarter of 1996. At the current rate, the deficit will exceed last year’s record $10 billion.

In the wake of the announcement on interest rates, the shekel was revalued, with the new representative rate at 3.23 shekels to the dollar.

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