IBI: Amir Yaron is a big gamble

Amir Yaron Photo: University of Pennsylvania

IBI Investments chief economist deplores Yaron's lack of banking and monetary policy experience and fears for the Bank of Israel's independence.

"The appointment of Prof. Amir Yaron as Governor of the Bank of Israel is no small matter, because his familiarity with the Israeli economy is probably not extensive, given that reports say that he has been living in the US for the past 20 years," says IBI Investments chief economist Rafael Gozlan.

"His academic background is not in monetary policy or central banks; it is in finance. Prime Minister Benjamin Netanyahu and Minister of Finance Moshe Kahlon are therefore taking something of a gamble concerning his ability to cope with potential crises. This immediately invites a comparison with Stanley Fischer, under whose leadership the Bank of Israel very successfully withstood the 2008 crisis," Gozlan wrote.

Gozlan added, "The appointment of Yaron can only raise questions about the considerations that guided the prime minister and the minister of finance. It is no secret that the chemistry between Governor of the Bank of Israel Karnit Flug and the minister of finance was not good, given the Bank of Israel's criticism on a number of matters, especially taxation, real estate (the Buyer Fixed Price Plan), and bank reform. If the main consideration was the appointment of a 'comfortable' governor, meaning someone who will not frequently criticize the government when necessary, this will become clear before long. If this is the case, the market will accordingly charge a higher premium, because it will indicate a decline in the Bank of Israel's independence."

Gozlan believes that Yaron's appointment will also affect current Deputy Governor of the Bank of Israel Dr. Nadine Baudot-Trajtenberg. He writes, "It cannot be ruled out that a new deputy governor will be appointed in the coming year, which will constitute a double change in the composition of the Bank of Israel Monetary Committee."

"Yaron is an unknown on the subject of monetary policy," writes Leader Capital Markets macroeconomist Yonatan Katz. "He will have to learn, and will probably wait at the first meeting and not make an immediate change. The interest rate is low because there is no inflation, and if he puts the emphasis on non-financial activity and the need for a balance in financial assets, his inclination will be to raise the interest rate in order to restore it to a 'normal' level."

"Globes": How does the Bank of Israel's interest rate policy differ from that of the US Federal Reserve Board?

Katz: "The Federal Reserve Board has a double mandate: ensuring price stability, but also safeguarding the employment market and economic growth. Yaron is an American, and I don't know how much the US attitude will affect his policy. According to the US attitude, however, we're at full employment and projected growth is strong, so the obvious measure is an interest rate hike."

Published by Globes [online], Israel business news - en.globes.co.il - on October 11, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

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Amir Yaron Photo: University of Pennsylvania
Amir Yaron Photo: University of Pennsylvania
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