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The Bank of Israel has announced its decision to raise its basic interest rate by 0.75 percentage points from 1.25 percent to 2 per cent, the biggest rate hike in two decades.

Back in July 2002, the Bank of Israel increased its rate by 2.64 percentage points from 6.46 per cent to 9.1 per cent, reports Xinhua news agency.

The current interest rate of 2 per cent is also the highest since December 2012 when the rate was the same figure.

This is the fourth consecutive rate hike in Israel since April when the central bank increased the rate from its record low of 0.1 per cent to 0.35 per cent.

According to the central bank, the latest aggressive rate move was made to curb the annual inflation rate, which has climbed to 5.2 per cent, way above its 1-3 per cent target range.

The central bank also said the 6.8-per cent GDP growth recorded in the second quarter, suggesting strong economic activity and tight labour market, allows the rate hike.