Bank of Israel governor on the political crisis: "There has been a decline in Israel's economic certainty"

Governor of the Bank of Israel Amir Yaron participated today (Tuesday) in the Eli Horowitz Knesset held in Jerusalem and referred to the state budget for the years 2023-2024 which was approved in the second and third readings in the Knesset. The governor emphasized that "there is no real news for the labor market in the current budget, and maybe even the other way around."

First, the governor of the Bank of Israel said that "the budget framework is not overly expansive, and in this context it is a responsible budget framework, similar to the wage agreements signed a few months ago. Both correspond with the goals of the monetary policy to return inflation to the target. In this context, I think that the Bank of Israel has a contribution Not to be ignored – along with the determination of the Minister of Finance – to keep the budget framework intact, despite the many pressures that have been applied. However, looking at the mix of the budget, I believe that it lacks essential growth generators for the economy, and in some places there is even a negative contribution to it."

Bank of Israel (Photo: Yonatan Zindel, Flash 90)

"Regarding physical capital, I will start by saying that overall in the current budget the Ministry of Finance has exhausted the budget for investment in infrastructure compared to the existing planning stock. It is no secret that the scope of physical capital in Israel is low compared internationally. A significant gap – especially in light of the high demographic growth in Israel."

One of the main causes of the gap in physical capital is underinvestment in national infrastructure. such as public transportation, roads, the metro project, etc. We all know the cost of this – Israel stands out negatively in international congestion indicators. However, as we have pointed out many times, the investment of the shortfall, i.e. the lack of budgeting required to accelerate the infrastructure inventory, stems in no small part from the lack of long-term planning inventory and budgetary certainty regarding it," he added.

He also referred to the interest rate increase in Israel, and asked the banks to "pass the interest rate increase on to the consumer public". According to him, "This is a painful and necessary tool to eradicate inflation," and that "the various parties at the Bank of Israel are examining the pain and examining how to eradicate it. The creative solutions presented by the banks show how much they can help consumers who need it. It is expected that they will continue." In addition, she backed up the decision to raise the interest rate and emphasized that "if the Bank of Israel had not responded, the increase in the monthly repayment would have finally increased exponentially."

Governor of the Bank of Israel, Prof. Amir Yaron (Photo: College of Management)

At the end, the Governor referred to the effects of the reform in the judicial system on the Israeli economy. "The Israeli economy is dynamic and resilient as it has shown throughout the crises in recent years. At the moment, the Israeli economy indicates active activity with some moderation in the end data and inflation that is still sticky," he explained.

"There is no doubt that the Israeli economy has experienced a significant local shock in recent months. This is not surprising: an economy likes certainty and stability. In recent months, following the proposed changes regarding the judicial system and the events that accompanied them, there has been a decline in Israel's economic certainty as perceived by the markets," he concluded .