Interviewed on Israeli television yesterday evening, Governor of the Bank of Israel Amir Yaron explained the considerations behind the decision by the bank’s Monetary Committee to raise its interest rate by 0.75% to 2%. "The rate of economic growth in Israel is among the highest in the west and inflation is relatively low, but we have to make sure that it doesn’t get out of hand, and doesn’t reach the levels seen in Europe," he said.
Yaron mentioned the war in Ukraine as one of the main causes of excessive inflation. "The war in Ukraine poured fuel on the flames all over the world and was the reason that we accelerated the increases in interest rates," Yaron said, adding, "At present there’s a deviation of 2%, and we’re determined to return inflation to the target range. There are many who don’t remember what happened here in the 1980s. Inflation is a tax that mainly impacts the weak sections of the population."
On rising mortgage repayments, Yaron said, "We understand the pain and we’re aware of it. Our numbers show that if you look at people who have taken mortgage loans in the past five years, the rise in interest rates so far amounts to NIS 245 on the monthly repayment. There’s a very large mix. But it’s important to understand that the pain today, and we understand it and take it into account, is in order to prevent much worse pain in the future."
Asked about the meteoric rise in home prices, which has reached 18% annually, Yaron took a side swipe at recent governments. "Clearly, a rise of 18% is too much," he said, "prices here are too high, certainly in relation to wages. The treatment for this over time is on the supply side. We have healthy demographics. The process of planning and land rezoning is very long. We need to resolve this issue, to increase supply substantially, it’s not on the Bank of Israel’s side. The interest rate will help to cool things down, but it’s not the main tool. In the end, even if prices moderate, it will still cost young couples. So the key is on the supply side, and that has to be consistent over time."
Interviewed by Channel 13 News, Yaron was asked about future interest rate decisions. "It takes time to see the effects of an interest rate rise," he responded. "Had we not raised the interest rate in the previous months, inflation would be higher today. If I have to give an estimate, we’ll see a decline in inflation in the second half of 2023, and so we’re not talking about cutting interest rates at the moment. We’re determined to get the inflation rate into the target range."
Published by Globes, Israel business news - en.globes.co.il - on August 23, 2022.
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