In a surprise move to curb inflation, Israel's central bank has raised its key interest rate by 1.5 percentage points to 7.1%.

In recent months there has been a rise in the trend of inflation expectations for the next 12 months

Bank of Israel

The rise will officially come into effect on Tuesday, the Bank of Israel said following the unscheduled announcement.

"Raising interest rates in the short term aims at restoring inflation to the realm of price stability and strengthening financial stability," the central bank said.

"In recent months there has been a rise in the trend of inflation expectations for the next 12 months.

"For some time this has deviated from the upper limit of price stability [at 3%] and has even reached 5% recently."

Weak currency

The central bank recently raised rates by 1 percentage point to halt the country's currency, the shekel's fall against the US dollar.

The move failed to work as intended and the shekel fell to 4.99 to the dollar on Friday, its lowest level yet and about 14% down on December 2001 when the bank slashed 2 percentage points off the rate.

The pressure on the shekel has been a result of investors fleeing Israel due to a harsh recession, rising government spending and the extensive violence in the region.

The latest rate hike reversed the exchange rate, with the shekel bouncing back to 4.93 to the dollar.