Market fears BoI Governor won’t seek second term

In six months, Bank of Israel Governor Prof. Amir Yaron will end his five-year term. The global and Israeli economic landscape has completely changed since he took office. Yaron has endured a global pandemic, high inflation, still-ongoing skyrocketing interest rates, and political pressures that none of his predecessors likely faced.

Yaron himself told Globes in an interview last month that he had not yet decided whether he wanted to run for a second term. But there is a growing feeling among market sources that he will not continue in his job, mainly due to the criticisms he has spoken about, even to the international media, about the government’s policies and the damages caused by the judicial reform legislation. Even if he wanted to continue for another five years, he would need the approval of Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich, two people driving Israeli economic policies who have been criticized by Yaron.

The person who is expected to have a major say in the issue of the next ruler is Netanyahu’s economic adviser, Professor Avi Simhon. It was Simhon who recommended Yaron to Netanyahu, then Finance Minister Moshe Kahlon, and he is expected to participate in determining the identity of the next ruler.

“important test case”

The political echelon insists, less than six months after the end of Yaron’s term, that they have not yet begun to deal with the issue and that the official process will only begin within 3-4 months. However, the decision to continue Yaron’s position must be taken in the near future, so that the process of selecting candidates begins.

In light of the great uncertainty in the local market due to the planned changes in the judicial system, there are also those who believe that extending Yaron’s term would send a calming message to the markets, and remove the fear of interference in independence. Bank of Israel. Those who closely follow the Israeli economy are scrutinizing the current government’s actions on the issue of the next ruler.

“This is a very important test case, among the most important government tests,” says a source in the financial world. “Markets are going to take a hard look at the appointment and see what is wrong with it. If the government doesn’t give a completely pure appointment, it could be dangerous for the markets. Fear and estimation that someone won’t restrain themselves and bringing foreign considerations into the process is a serious concern.”

Another source in the financial world also points to the great sensitivity of the appointment, due to the situation that has arisen around judicial reform. He mentions, among other things, the words of the governor, who recently specifically pointed out the damage caused by the planned judicial changes to the economy, such as the announcement that the reform caused the shekel’s exchange rate to drop by 10% against the dollar. Which, he added, contributed to an increase in inflation by 1%.

The source explains: “We have heard the governor express himself in a very independent way and without fear of expressing an opinion. This is welcome and important but it makes the appointment sensitive. If he does not continue, leaving may be seen as an attempt to move him because of the criticism he has made of the legislation, and then we will see a reaction.” Sharp in the markets, and if it continues, that will be good news.”

Who will be his replacement?

As for a potential replacement, the procedure is still in its infancy, but the limited time frame allotted for finding a governor could make the position difficult to fill. In recent years, it has been common for conservatives to come from academia with a PhD or professorship. If Yaron does not stay for another time, it is likely that the government intends to continue the custom.

In the market, it is estimated that an opinionated person will not be afraid to take office, even with the noise of the political background, and although the public often views the governor as the bad guy who raises interest rates.

Meanwhile, one name in particular that stands out at the Bank of Israel is that of Deputy Governor Andrew Abir. “Obviously someone like Andrew, who is a professional at the highest level, would be seen as a very strong appointment. The market knows him and he knows he won’t allow anyone to praise him. He’s a person of value that if the current ruler doesn’t last, the markets accept and love.” , says a source in the financial market.

Not a new situation

The situation in which the governor leaves at the end of his first term, after criticizing the government’s economic policy, is nothing new. Karnett Flug, Yaron’s predecessor, did not stay for another term after criticizing Kahlon’s fiscal policy, especially the Pioneer Homebuyer’s Rate Program. Kahlon’s entourage conveyed messages that they would not extend Fluj’s term, and she preempted the blow by sending a firmly composed letter to Netanyahu, declaring that she would not seek another term.

Flug became governor after Stanley Fisher stepped down, a situation we may see again if Yaron does not win another term and does not choose a replacement until his retirement. Flug deputy Nadine Bodo Trachtenberg also served as acting governor prior to Yaron’s appointment due to delays in the process.

In the current period, which is characterized by a high degree of uncertainty, not deciding on a date may add fuel to the fire and increase economic damage. There is currently no regulated practice of the gubernatorial selection process, but the most recent appointments have demonstrated that the people selected have been professionals without political bias.

Published by Globes, Israel business news – en.globes.co.il – on June 6, 2023.

© Copyright Globes Publisher Itonut (1983) Ltd., 2023.