The Bank of Israel hiked benchmark interest rates to their highest level since 2006 on Monday, citing high inflation and a tight labor market, and said upcoming data would determine whether it raised them further.

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The central bank lifted the key rate for the 10th policy meeting in a row, to 4.75% from 4.5%. All 15 economists polled by Reuters had projected the move, with some believing it may be the last.

Despite the steep tightening cycle and signs of some economic moderation, Israel's annual inflation rate stood at 5% in April, near a 14-year high and well above the government's 1%-3% target range, angering the public but boosting banks' profits.

Deputy Governor Andrew Abir said the central bank was pushed to raise interest rates more than it had hoped in recent months due to the government's judicial overhaul plan that has fuelled political uncertainty, prompted sharp criticism at home and abroad, and raised Israel's risk premium – leading to a weaker shekel and higher inflation.

Without a depreciation of the shekel this year, "inflation would probably be somewhere around 4% rather than 5%," he told Reuters, adding that without the series of rate increases, inflation would have been closer to 7%.

Policymakers expect the inflation rate will stay around 5% in May but were looking for an easing afterward, Abir said. "All options are open," Abir said. "You can see a situation where we see inflation starts coming down and we can think that the monetary tightening is mostly done. We can see a situation where the data comes out strong ... and think we need more monetary tightening."

"We have done most of the heavy lifting," he said. "Negotiations over the judicial reform will have an important part in what goes on in the markets and the risk premium of Israel. If we get a compromise that is widely accepted, that will be a good outcome for Israel's economy and will allow us to not have to tighten monetary further."

The central bank's next interest rate decision is on July 10. "Another rate hike in July appears likely unless we get a downward inflation surprise or a stronger shekel," said Jonathan Katz, chief economist at Leader Capital Markets.

Since the prior rates decision in early April, the shekel weakened 1.5% against the dollar. It was 0.4% lower against the dollar after Monday's decision. Abir downplayed the notion of intervention to boost the shekel, saying: "It's clear that the interest rate needs to be the first and predominant tool we use."Israel's economy grew at an annualized 2.5% in the first quarter from the prior three months, and growth in 2023 is expected to ease to 2.5% from 6.5% last year.

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Inflation reared its head once again in July owing to a surprisingly high 1.1% spike in the Consumer Price Index in July, putting Israel on track for the highest year-on-year rise in prices since 2008.

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The  Central Bureau of Statistics published a host of other economic indicators indicating that at the current pace inflation could be as high as 5.2% in 2022, the fastest in well over a decade and almost double the 3% Bank of Israel forecast.

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The Bank of Israel purchased tens of millions of dollars Tuesday to stem the rise of the New Israeli Shekel after earlier in the day the US Dollar hit a 25 year low against the shekel, officially dropping below the benchmark 3.10 NIS to 1 dollar rate, a threshold the bank had hoped to avoid crossing.

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The Euro also dropped sharply against the New Israeli Shekel and was traded on Tuesday at an exchange rate of NIS 3.511 to 1 euro.

At the end of official trading, the Bank of Israel set the Dollar to NIS exchange rate at $1 to 3.09 NIS. The dollar lost -0.387% of its value in total against the NIS on Tuesday.

A strong NIS is good for Israeli consumers and tourists. It makes traveling abroad cheaper because the NIS increases in value in relation to local currencies. And since airfares and hotel rates are set in either Dollars or Euros, for the most part, when the NIS rises, it costs Israelis less to buy the same item. This also makes foreign imports less expensive for the Israeli consumer.

There is a downside to Israel's economy, however. The strong NIS means foreign investors in Israeli startups get less value for their money. It also means less spending by foreign tourists since their dollars and euros do not go as far. And it also makes Israeli exports more expensive to foreign buyers.

This is not just a problem of a weak US Dollar due to America's fiscal and financial policies vis-à-vis debt and government spending as a percentage of GDP. All of the world's major convertible currencies were down against the NIS.

The British Pound fell -0.247% on Tuesday and finished trading at a rate of NIS 4.1564 to the pound.

As reported by Israel Hayom on Tuesday, in the coming days, Finance Minister Avigdor Lieberman is expected to declare a series of steps to encourage exporters and compensate them over the strengthening NIS. Over the past year, the NIS has strengthened by over 10% against the US Dollar.

BOI Governor Prof. Amir Yaron views the rising inflation in the world as temporary, said: "The market picture is completely different now, and the strengthening NIS could somewhat curb global inflation."

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The CPI has risen by 2.5% since the beginning of the year, closer to the upper margin of the government's inflation goal – between 1% and 3%.

Meanwhile, there were also significant price falls in culture and entertainment (2.6%) and clothing (2.1%).

The housing prices index, which is separate from the CPI, continued to rise in the July-August period, compared with June-July, climbing by 1.2%. Housing prices have risen 9.2% over the past 12 months.

During July-August compared with June-July, housing prices in Jerusalem rose by 2.5%, central Israel (1.9%), Tel Aviv (1.8%), southern Israel (1.1%) and Haifa (0.6%). Prices in the north fell by 0.5%.

In the 12 months prior to July-August 2021, prices in Jerusalem rose 10.7%, central Israel (10.5%), northern Israel (9.6%), Tel Aviv (9.5%), southern Israel (7.3%), and Haifa (6%).

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Middle East economies are recovering from the coronavirus pandemic faster than anticipated, largely due to the acceleration of mass inoculation campaigns and an increase in oil prices. But the International Monetary Fund warned Sunday that an uneven vaccine distribution would derail the region's rebound, as the prospects of rich and poor countries diverge.

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In its latest report, the IMF again revised upward its 2020 economic outlook for the Middle East and North Africa, now outlining just a 3.4% contraction last year, with growth for the region's oil exporters buoyed by a boom for commodities and rise in oil price, which hit $67 a barrel in March. Even with an expected dip to $57 a barrel by the end of 2021, the surge from last year's all-time lows is boosting the oil-rich nations of the Persian Gulf, such as the United Arab Emirates and Saudi Arabia, which also have moved swiftly toward widespread vaccination.

But elsewhere in the region, from Yemen and Sudan to Libya and Lebanon, where inflation soars, instability prevails and wars have left lasting scars, the damaging effects of the pandemic will drag on and cause economic harm, the IMF said – possibly for years to come.

"We are a year into the crisis and recovery is back, but it is a divergent recovery," Jihad Azour, director of the Middle East and Central Asia department at the IMF, told The Associated Press. "We are at turning point. ... Vaccination policy is economic policy."

The IMF expects economic growth to reach 4% for the Middle East this year. But that rosy outlook papers over the region's deep economic divides.

For oil-rich economies, yawning deficits are expected to halve this year as revenues climb, more arms get jabbed and lockdown measures recede, said Azour. Thanks to strong government management of the virus' successive waves and the jolt in oil prices, Saudi Arabia's economy will expand 2.9% -- compared to last year's contraction of 4.1%. Higher oil prices come as the Organization of the Petroleum Exporting Countries (OPEC) and its allies keep a lid on production and it seems unlikely that the US will quickly lift sanctions on Iran's critical oil sector.

The IMF expects the UAE's economy to grow this year by 3.2%, with Dubai's World Expo, now rescheduled for October 2021, key to the nation's recovery. Dubai hopes the massive event will draw 25 million visitors and a series of deals, heralding a bright post-pandemic future.

The UAE has launched among the world's fastest inoculation campaigns, with over 90 doses administered per 100 residents as of this week. Still, the collapse of hospitality, tourism and retail presents challenges for glitzy Dubai, where a cascade of layoffs hit foreign workers and slashed the emirate's population by 8.4%, according to ratings agency S&P Global.

The outlook is bleaker for fragile and developing economies, many with lagging vaccination campaigns, few resources for fiscal stimulus and revenues drawn heavily from sectors like tourism that have been slowest to recover from the pandemic.

Whereas rich countries plan to vaccinate most of their population in a few months, swaths of the region – from Afghanistan and Gaza to Iraq and Iran – likely won't inoculate a significant portion of their populations until mid-2022, the IMF said.

Even that estimate may be optimistic. The region's lowest-income countries could end up waiting until 2023 at the earliest for mass vaccination, according to the report. Meanwhile, many countries' beleaguered health systems are straining under resurgent waves of infections, prompting authorities to impose new restrictions and inflict more economic pain.

The IMF expects a sluggish 2021 recovery for Egypt and Pakistan, oil importers reliant on tourism that saw an exodus of foreign investors last year. The fund revised down its growth estimate for Jordan, where the youth unemployment rate has skyrocketed to 55%. Sudan remains mired in debt and threatened by instability, but its economy could grow for the first time in years as it gains new access to international financial networks.

Lebanon, in the midst of its worst financial crisis ever, remains the only Mideast economy at risk of further contraction. The country has defaulted on its foreign debt and failed to implement economic reforms, let alone form a government. A giant explosion at the Beirut port last year wreaked havoc on the capital. Discussions with the IMF led nowhere after the Cabinet quit.

Azour declined to even offer a specific economic forecast for Lebanon this year, citing "all the uncertainties."

In Iran, the IMF found reason to praise economic growth after years of decline, noting that the government's resistance to virus-induced lockdowns that would have devastated its sanctions-hit economy had saved it from the worst of the pandemic's fallout. The country's economy is expected to grow 2.5% in 2021, Azour said, building on slight gains last year.

But Iran's recovery remains far off as its vaccinations lag, inflation eliminates people's savings and economic policies overlook the most vulnerable. The IMF continues to consider Iran's $5 billion assistance request, which would be its first loan since 1962. Meanwhile, American sanctions remain in force as torturous discussions begin over a return to Tehran's tattered 2015 nuclear deal with world powers.

"A removal of the recently implemented sanctions will of course allow the Iranian economy to export more, trade more, and this will have a positive impact," said Azour, while urging the government to tame inflation and better incorporate the private sector.

Despite the worsening inequality, the pandemic has shown the fortunes of the Mideast's richest and poorest countries to be increasingly intertwined. Surging infections and foundering inoculation anywhere in the region could spread new variants that threaten overall economic and public health, the IMF reported.

"Therefore, any regional cooperation would be welcome going forward," said Azour.

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According to the London-based Arab newspaper Asharq al-Awsat, Iranian President Hassan Rouhani has gone on record as saying that so far it has inflicted $200 billion in damages on the country's economy.

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"Sanctions have disadvantaged the Islamic Republic of $100 billion in oil income within the final two years and an equal quantity in international funding credit score," the report said, citing Rouhani's official website.

Describing the sanctions as "extremely harsh," Rouhani lauded the Iranian people's "perseverance opposite the enemy."

Iranian economists believe that the local economy is likely to shrink by 10% over the sanctions and that oil revenue will tumble by a staggering 70% in the next fiscal year.

Iran's oil industry suffered a significant blow by India's decision in May to cut oil imports from its third-largest oil supplier.

India's Prime Minister Narendra Modi severed his country's economic ties with Iran following Trump's decision to revoke India's special permit to import oil from Iran.

According to Iranian media reports, the ayatollahs' regime plans to cover its losses by imposing a 13% tax hike, which may spell the economy's demise.

Tehran further plans to sell government bonds worth about $27 billion, but given the freefall of the Iranian rial, they may only be worth $10 billion on the black market.

Rial rates, which have caused inflation to soar, also affect the Iranian state budget, which in 2020 is likely to come to only about $40 billion.

According to the report, the dire economic crisis may jeopardize the ayatollahs' regime, especially given the recent riots in the country, which have been the largest since the 1979 Islamic Revolution.

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Since the last rate decision on July 8, data showed annual inflation dropping to 0.8% in June from 1.5% in May. That is below the government's 1%-3% annual inflation target and a rate of 2% the central bank is seeking to reach.

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Yaron noted that major central banks look to return to expansionary measures, particularly the US Federal Reserve which has had "a significant impact" on the shekel's exchange rate and which is also expected to influence inflation.

"In light of these developments, I estimate that for an extended period of time there will be no decision to raise interest rates," Yaron said in a statement on Wednesday.

"Moreover, if necessary, we have more tools available," he said in a likely reference to intervention in the foreign exchange market.

The Fed was expected to cut interest rates on Wednesday for the first time in a decade.

Four out of five Bank of Israel monetary policy members voted for no rate change this month on a view that the inflation environment had been stable for several months within the target range while there was high uncertainty regarding economic developments in Israel and abroad.

But according to the meeting, MPC members agreed that in the coming months "conditions could ripen for increasing the interest rate by 0.25 percentage points" contingent on the inflation environment and domestic and foreign economic developments.

One member voted for a quarter-point hike.

Following the rate decision, Yaron said it might be necessary to raise rates in one of the upcoming meetings, stressing that while developments abroad influenced Israel, "we do not need to be one-on-one to what is happening in the big blocs."

His comments helped to strengthen the shekel, which has gained 2% versus the dollar this month and nearly 7% in 2019.

After Yaron's latest comments, the shekel weakened 0.2% to 3.5 per dollar, a 16-month peak, from a session high of 3.47 earlier in the day.

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From a subway performer's battered leather hat devoid of tips to a bride-to-be's empty purse, the lack of cash from the economic pressure facing Iran's 80 million people can be seen everywhere.

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Many blame US President Donald Trump and his maximalist policy on Iran, which has seen him pull out of Tehran's 2015 nuclear deal with world powers and levy punishing US sanctions on the country.

In recent weeks, Iran has threatened to break out of the deal unless European powers mitigate what it calls Trump's "economic warfare." Iran also appeared ready to push back against the buildup of US forces in the region, after shooting down an American drone it says violated its airspace last week.

In response, US officials have vowed to pile on more sanctions.

But alongside Trump, many Iranians blame their own government, which has careened from one economic disaster to another since its Islamic Revolution 40 years ago.

"The economic war is a reality and people are under extreme pressure," said Shiva Keshavarz, a 22-year-old accountant soon to be married.

She said government leaders "keep telling us to be strong and endure the pressures, but we can already hear the sound of our bones breaking."

Walking by any money exchange shop is a dramatic reminder of the hardships most people are facing. At the time of the nuclear deal, Iran's currency traded at 32,000 rials to $1. Today, the numbers listed in exchange shop windows have skyrocketed – it costs over 130,000 rials for one US dollar.

Inflation is over 37%, according to government statistics. More than 3 million people, or 12% of working-age citizens, are unemployed. That rate doubles for educated youth.

Depreciation and inflation make everything more expensive – from fruits and vegetables to tires and oil, all the way to the big-ticket items, like mobile phones. A simple cell phone is about two months' salary for the average government worker, while a single iPhone costs a 10 months' salary.

"When importing mobile phones into the country is blocked, dealers have to smuggle them in with black market dollar rates and sell them for expensive prices," said Pouria Hassani, a mobile phone salesman in Tehran.

"You can't expect us to buy expensive and sell cheap to customers. We don't want to make a loss either."

Hossein Rostami, a 33-year-old motorbike taxi driver and deliveryman, said the price of brake pads alone had jumped fivefold.

"The cause of our problems is the officials' incompetence," he told The Associated Press as fellow motorbike drivers called out to passengers in Tehran. "Our country is full of wealth and riches."

The riches part is true – Iran is home to the world's fourth-largest proven reserve of crude oil and holds the world's second-largest proven reserve of natural gas, after Russia.

But under the Trump administration's maximum-pressure campaign, the US has cut off Iran's ability to sell crude on the global market and threatened to sanction any nation that purchases it. Oil covers a third of the $80 billion a year the government spends in Iran, meaning that a fall in oil revenues cuts into its social welfare programs, as well as its military expenditures.

The rest of the country's budget comes from taxes and non-oil exports, among them oil-based petrochemical products that provide up to 50% of Iran's $45 billion in non-oil export.

In Tehran's Laleh park, retired school teacher Zahra Ghasemi criticized the government for blaming "every problem" on US sanctions.

She says she has trouble paying for her basic livelihood. The price of a bottle of milk has doubled, along with that of vegetables and fruit.

"We are dying under these pressures and a lack of solutions from officials," Ghasemi said.

Years of popular frustration with failed economic policies triggered protests in late 2017, which early the following year spiraled into anti-government demonstrations across dozens of cities and towns.

The current problems take root in Iran's faltering efforts to privatize its state-planned economy after the devastating war with Iraq in the 1980s, which saw one million people killed.

But Oil Minister Bijan Zanganeh said earlier this month that the crunch on oil exports is hitting harder today than during the 1980s war, when Saddam Hussein's forces targeted Iran's oil trade.

"Our situation is worse than during the war," Zanganeh said. "We did not have such an export problem when Saddam was targeting our industrial units. Now, we cannot export oil labeled 'Iran.'"

Still, many Iranians pin the economic crisis on corruption as much as anything else.

"Our problem is the embezzlers and thieves in the government," said Nasrollah Pazouki, who has sold clothes in Tehran's Grand Bazaar since before the 1979 Islamic Revolution. "When people come to power, instead of working sincerely and seriously for the people, we hear and read after a few months in newspapers that they have stolen billions and fled."

He added: "Whose money is that? It's the people's money."

Sanctions do cause some of the problems, said Jafar Mousavi, who runs a dry-goods store in Tehran. But many of the woes are self-inflicted from rampant graft, he said.

"The economic war is not from outside of our borders but within the country," Mousavi said. "If there was integrity among our government, producers and people, we could have overcome the pressures."

Yet people come and go each day to work on Tehran's crowded metro, seemingly earning less each day for the same work. In one train car, Abbas Feayouji and his son Rahmat play mournful-sounding traditional love songs known as "Sultan-e Ghalbha," or "King of Hearts" in Farsi.

"People pay less than before," said the elder Feayouji, a 47-year-old father of three, as he took a short break to speak to the AP. "I don't know why they do, but it shows people have less money than before."

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Despite the unexpectedly low inflation, it was still double that of 2017 and the highest since 2013.

U.S. President Donald Trump's policies in the energy market may have also played a role in the relatively modest price hikes in 2018. Trump's push for greater oil output from the Organization of the Petroleum Exporting Countries resulted in lower prices at the pump for Israeli drivers and ultimately brought down inflation by 0.3 percentage points.

Inflation was also affected by the Israeli housing market cooling off in 2018, with apartment prices falling by 2.3% in 2018. This can be attributed to the Finance Ministry's flagship program offering young couples subsidized homes through a lottery system.

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