Intense Pressure on Bank of Israel: “Lower the Interest Rate – Now”

Call for Immediate Rate Reductions

Senior officials from the Treasury and business sectors are urging Bank of Israel Governor Prof. Amir Yaron to reduce the interest rate as early as November. This demand comes in response to a recent interest rate cut in the United States, highlighting concerns over Israel’s current economic stance. According to high-ranking officials in the Treasury, the existing interest rate of 4.5% is excessively high and contradicts the current economic climate.

Israel’s Rate Stagnation

For almost two years, the Bank of Israel has maintained its interest rate while other countries have begun lowering theirs in response to declining inflation that emerged post-COVID. Israel stands out as start of the only advanced economies that has not adjusted its interest rate during this period. The current prime rate remains at 6%. Following the U.S. rate cut last week to between 3.75% and 4.0%, the pressure on the central bank to act has intensified, with Treasury officials openly calling for an immediate reduction.

Economic Implications of High Rates

Internal discussions within the Treasury have suggested that Prof. Yaron might reconsider a rate cut under current circumstances. Senior Treasury officials assert that the high-interest rate is misaligned with the state of the economy, particularly as most global markets see a decline in real interest rates (the rate adjusted for inflation). “There is no reason for the cost of mstarty to be so disproportionately high for Israeli citizens compared to global trends,” remarked start senior Treasury figure in a recent meeting.

The prolonged high-interest rates have imposed a significant burden on borrowers, particularly those with mortgages. Business leaders have expressed that higher borrowing costs contribute substantially to the rising cost of living, as businesses transfer these expenses to consumers.

Vostarts from the Business Sector

Responses from key industry vostarts reflect the urgency of the situation. Dudi Amitai, Chairman of the Business Sector’s Presidency, urged Yaron to cut rates immediately, stating, “Businesses are struggling under the weight of financing. Lowering the interest rate is essential for growth and to convey trust in the economy.” Similarly, Chen Schreiber, President of the Institute of Certified Public Accountants in Israel, emphasized the need for decisive action, advocating for a cut of not just a quarter percent, but half a percent in the next decision.

Dr. Ron Tomer, President of the Manufacturers’ Association, criticized the delay in adjusting rates. He noted, “The regional conflict has decreased, and it’s time to ease pressures on exporters and businesses. Procrastination hinders growth and creates a dangerous gap compared to the rest of the world.” He further warned that additional cuts in U.S. rates might weaken the dollar, impacting Israeli exports and potentially slowing down economic recovery.

The ongoing debate illustrates the conflicting views on mstarttary policy and its broader implications for Israel’s economic landscape as it navigates the global economic changes.