Stanley Fischer made his move last night and took (almost ) everybody by surprise. The general assumption had been that the Bank of Israel would raise its interest rates for April, though not all agreed even to that premise. Some analysts had suggested he might thump his fist on the metaphorical desk and jack up the rate by half a percent, but that fell short of a forecast. Yet that's what he did, last night announcing a rate hike by half a percent to 3.0% for April.

Raising Israeli interest rates by a whole half-percent is no trivial decision, remarked Amir Kahanovich, chief economist at Clal Finance: It shows Fischer is abandoning exporters to their fate.

"Even though there was a need to cool down bubbling prices ... a third rate hike in a row, this time by 0.5%, while there is no indicator regarding U.S. interest rates and the shekel is becoming one of the strongest currencies in the world, is not a simple matter," Kahanovich said. "At some level it is an admission by the Bank of Israel that it's had it and that predators can pounce on the shekel. The era of exports is over."

So is cheap credit: Interest rates on overdrafts will be rising from the weekend.

It is considered an aggressive move, taken for a number of reasons - inflation powering ahead and the refusal of Israeli housing prices to stop rising. Both had to be stopped even at the cost of harming exports, said Yossi Schwimmer, chief economist at Migdal Capital Markets. He thinks the central bank was spurred by estimates that other central banks around the world will be raising their rates too.

The increase in interest rates will jack up monthly repayments by homebuyers to banks by hundreds of thousands of shekels a month.

Why would Fischer make such an aggressive move, raising the rate by double the forecasts, while interest rates elsewhere in the developed world stay low? There are four main reasons.

For one thing, the consumer price index has been running above forecasts for months.

Secondly, inflation expectations for 2011 and for the next 12 months are running well above the government's target range for inflation, which is 1% to 3%. "The inflation rate, measured over the previous 12 months, continued to increase, and in February reached 4.2%," the central bank itself said in its announcement.

Thirdly, the Bank of Israel itself and forecasters are predicting that inflation will stay above the ceiling of the target range this year, and fourthly, long-term inflation expectations aren't any lower.

Moreover, there are signs that the U.S. Federal Reserve will start raising American interest rates sooner than generally expected, as will the European Central Bank. They too have inflationary concerns as commodities, from grains to oil, soar in price.

Rafi Gozlan, chief economist at Leader Capital Markets, also feels the governor did the right thing. But industrialists were up in arms last night. Avraham Novogrotzki, chairman of the economics committee at the Manufacturers Association and an officer with the Africa Israel group, accuses the central bank of blunting the competitive edge of Israeli exporters: Eroding exports are the worst threat Israel's economic growth faces, Novogrotzki said.