Minister of Finance Moshe Kahlon has said almost nothing in public about an interest rate hike during his term in office, other than on one occasion in December 2015, when he said that the Bank of Israel should follow the example of the US Federal Reserve System, which started raising its interest rate.
"There will be no avoiding an interest rate hike, because of what is called the 'interest rate environment,'" Kahlon told "Yedioth Ahronoth" on that occasion, adding, "The most significant interest rate environment for us is the US. (Chairperson of the Board of Governors of the US Federal Reserve System, A.B.) Prof. Janet Yellen has already announced that an interest rate hike is unavoidable. There is no doubt that raising our interest rate will cool off the housing market. I'm thinking about the good of the economy. In general, there will be no alternative to raising the interest rate, but it does not depend so much on us; the governor of the Bank of Israel makes this decision, not I."
It is hard to tell whether Kahlon now supports an interest rate hike, given the fact that an interest rate hike would harm mortgage holders, many of whom belong to what Kahlon regards as his base. The damage is liable to be especially severe for housing purchasers under the Buyer Fixed Price Plan, because leverage on these housing units can be as high as 90%. On the other hand, the damage will not be felt immediately, while the psychological effect of an interest rate hike on prices in the housing market, which is greatly affected by expectations, will be mostly in the short term.
These considerations were certainly foremost in Kahlon's mind when he was asked about this subject in 2015, and his answer still sounds relevant: "A rise in the interest rate is a big risk for investors in housing, because they can find themselves with a higher interest rate for the mortgages that they took than the return they receive, but this is the type of risk that investors must take. Young couples will continue living in their homes, even if it is harder for them to repay their mortgages. There are many attacks against me by very strong interested parties who attack anyone who wants to lower prices, but I have only one consideration in mind - young couples."
Published by Globes [online], Israel business news - www.globes-online.com - on September 4, 2018
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