The monetary policies of Finance Minister Moshe Nissim were being questioned this week as Israelis faced the possibility of accelerated inflation.
The 2.4 percent hike in the October price index was an unpleasant surprise. It raised the annual inflation rate for 1988 to 17 percent, compared to 16.1 percent at the end of 1987.
If the shekel is again devalued in relation to the U.S. dollar — which many economists think is inevitable — a new era of triple-digit inflation may not be far behind.
Nissim and other financial policy makers were convinced that inflation could be curbed by freezing the exchange rate of the shekel to 1.6 to the dollar.
But now some economists say the freeze was responsible for the rising index.
It led to higher interest rates and a rush to buy consumer goods before inflation worsened.
The Bank of Israel, the country’s central bank, injected hundreds of millions of shekels into the economy to keep a lid on interest rates.
But that only fed inflationary pressures. The central bank is expected nevertheless to increase its Thursday loans to commercial banks by 400 million shekels.
The treasury, meanwhile, has upped the subsidies it pays exporters to compensate them for the low foreign currency exchange rate.
The Ministry of Commerce and Industry at the same time protects local industry by allowing prices to rise. Both ministries are feeding inflation.
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