Bank of Israel Governor Prof. Amir Yaron, Chairman of the Monetary Committee, held a press conference after announcing that the interest rate would remain unchanged at 4.75%, ending a series of 10 consecutive interest rate increases.
Yaron spoke about the weakness of the shekel, which he said stemmed mainly from local factors and not from the global environment. He said, “This is an excessive depreciation of the currency and conservative estimates indicate that it added 1%-1.5% to inflation. As long as the shekel’s weakness continues, this will take its toll and may require a more restrictive monetary policy.”
Asked by Globes about the Bank of Israel’s possible involvement in foreign exchange trading, he insisted, “At the moment, the market is working and therefore we usually don’t get involved. However, if there are drastic changes or the market fails, we have a toolbox that we know how to use.” “.
He also spoke about judicial reform. “I would like to say a few words about the impact of judicial reform on the economy, which has been on the public agenda in recent months. I have said many times in the past that due to the promotion of such reforms, there has been an increase in the level of uncertainty in the Israeli economy, which is reflected, by Among other things, in the excessive consumption of the shekel and the poor performance of the stock market in Israel.
He added, “Continuing uncertainty would have significant economic costs, as reflected in the risks to the research department’s forecasts, some of which I referred to earlier in my remarks. The International Monetary Fund also indicated, in its latest report, the negative” impact of uncertainty. This is why it is important to restore stability and certainty to the Israeli economy, to ensure that legislative changes are implemented with broad agreement, and to maintain the strength and independence of institutions.
Legislative interference with market mechanisms may distort the system.”
Regarding the benefits offered by banks to customers after he was reprimanded, Yaron said that the steps taken “are going in the right direction, encourage market mechanisms and commercial competition and can help the concerned customers.” However, he stressed that “legislative intervention mechanisms in the market may distort the system and achieve an undesirable result.”
Was the reaction of the Bank of Israel delayed, which led to initiatives by the Knesset and the government?
“The way to benefit customers is through reforms that will lead to competition. Two banks and payment companies come into the market, one-click switching banks, open banking, transparency in interest rates and mortgages. These things do not reach maturity immediately, but they will improve over time.” Time. We definitely told them to sharpen their pencils.”
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The Bank of Israel keeps the interest rate unchanged
Banks have heeded your request and come up with a host of benefits, which in the end means hundreds of shekels just for checking accounts and 1%-2% less on double-digit interest overdrafts. Is this enough in your opinion?
“The measures that have been taken are in the right direction. We hope that the same competition as well as the transparency we are now offering to the public, both on the customer side and on the banks side, will lead to actions that will benefit customers the most.”
You said you expected non-banking entities to enter the market to improve competition. Yet again and again we see these bodies getting into trouble. In your opinion, should the Bank of Israel participate in the actual supervision of and involvement in these entities? Wouldn’t selling credit card companies to insurance companies detract from this competition?
“As for the credit card companies, there are complex aspects to this issue and if necessary we will produce a detailed position paper and position paper. As for the non-bank entities, we want to see the right balance there. The stability of (these entities) is an important issue. You see in other countries how everything is changing Something and how all the attention is being directed there. That’s why we want to see non-bank entities but we want them to be properly supervised. Some of those entities are not currently under our supervision, and on the other hand, they should have the capacity to be under less stringent conditions. From the banks, and therefore they will challenge the banking system, and on the other hand, we must remember the customer in the end and make sure that there is sufficient appropriate supervision at the level of customers and supervision, so that they do not become systemic accidents.
The governor was asked if further intervention by the Bank of Israel is expected if bills continue to be introduced to the Knesset to interfere with the banking system. “It would be a mistake even if it leads to solutions in the short term, it would be a mistake to enter the world of pricing. We will hold a dialogue with MKs. Entering the field of influencing market mechanisms, in my opinion, is the issue that has a horizontal effect,” Yaron said. Wrong causes distortions… It is incorrect and inappropriate.”
After the previous interest rate decision, the governor said in an interview with “Globes” that he would soon decide whether he wanted to continue for another term. He was asked about it again and said, “I’ll make up my mind later, I think it will be made around the festive period. In the meantime, I’m very busy with work.”
Is there a connection between the fact that you were warned about the dangers of judicial reform and whether the prime minister and finance minister would agree to give you another term, and how would you describe their working relationship? Are you concerned if you do not continue to hold the position of independent governor of the Bank of Israel?
“The independence of the central bank is very important for the economy and it doesn’t matter who is in charge. Everyone understands it and the markets look at it. That’s why this issue is so important for the well-being of the economy. All countries where the central bank has been hit, the economy has been hit. I have a constructive relationship with the finance minister And the Prime Minister. I repeat, now my hands are full, and I will make up my mind at least, I estimate, close to the holidays.
The Bank of Israel warns of a decline in high-tech financing rounds
Looking ahead, the Bank of Israel lists three risks. The first is at the political level, the second is the rate of inflation abroad, and the third, the latest of the three, is the declining scope of money being raised in high-tech economic activity.
The Bank of Israel says that the main risk is that the judicial and institutional changes will be accompanied by one or more of the following developments: an increase in the state risk premium that will be accompanied by a decrease in the value of the shekel, and damage to the shekel. Exports and lower domestic investment and demand for private consumption.
Another risk factor is inflation abroad. “It is expected to converge to around 2% over the forecast period. At the same time, due to the relatively slow decline in the rate of service price inflation in the US and the eurozone, there is a risk that the rate of convergence will be slower than we assumed in the forecast and contribute to higher domestic inflation.” and more restrictive monetary policy,” the Bank of Israel said.
Finally, the central bank referred to the high-tech sector. “We have recently seen a decrease in the amount of money raised by startups in Israel. This decline seems to be stronger than the decline in startup investments around the world, which are recovering somewhat compared to startup investments in Israel. Despite the different indicators of activity In the high-tech industry in Israel indicates only a slight moderation, after the high growth rate in 2022, the continued decline in startup investments poses a risk to the growth outlook.
Published by Globes, Israel business news – en.globes.co.il – on July 10, 2023.
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