Minister of Finance Bezalel Smotrich has criticized Bank of Israel Governor Prof. Amir Yaron for not cutting the interest rate last week. He said that the Governor had "made a big mistake" in his decision to leave the interest rate unchanged at 4.5%.
Smotrich said, "I think that based on the data he describes in the interest rate decision, he should have reached the completely opposite conclusion. Inflation is inflation on the supply side and not on the demand side, the flights are more expensive because companies don't fly here and there is a war, and fruits and vegetables are more expensive because we don't have Thai workers, and we have problems in whole areas of the State of Israel and we don't have Turkey (which has a trade embargo on Israel). In housing, we have a problem with supply now because of the (absence of) workers Therefore, it is not related to the interest rate at all, it is the worst possible situation - it is a combination of inflation and a slowdown, and he should have cut the interest rate or at least signaled that it is going to happen. The market is what is needed right now."
Smotrich's criticism follows Yaron's criticism of the government for failing to agree on the 2025 budget, which he insists creates uncertainty and instability in the Israeli economy.
While Smotrich has political considerations, the Bank of Israel Governor is not a political figure who can take objective economic decisions, which are often painful rather than populist.
Ultimately the policies of the Bank of Israel Monetary Committee, which Yaron heads, could kill three birds with one stone. Firstly by lowering inflation, secondly by strengthening the shekel (the weak shekel is fueling inflation by making imports more expensive) and finally allowing the Monetary Committee to start cutting the interest rate.
Published by Globes, Israel business news - en.globes.co.il - on September 1, 2024.
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