More expensive lives: How will raising interest rates affect our pocket?

The Bank of Israel's attempt to curb inflation and raise the interest rate to 0.75% will hurt the pockets of all of us - from the monthly mortgage repayment, through higher loan repayments for every need - to the cash register at the supermarket.

So how much does it cost us?

Walla!

Explains

Between Ashkenazi

23/05/2022

Monday, 23 May 2022, 18:34 Updated: 21:10

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In the video: Michel Jamal talks about the rise in falafel prices following the rise in raw materials (Photo: Yoav Itiel)

Contrary to expectations, the Governor of the Bank of Israel, Amir Yaron, announced today (Monday) a 0.4% increase in interest rates - so that it now stands at 0.75%.

The Bank of Israel's announcement states that "indicators of economic activity continue to indicate a level close to potential and the impact of the epidemic on the economy has diminished significantly. However, the war in Ukraine and the slowdown in manufacturing activity in China are increasing inflationary pressures.

This means that the Governor of the Bank of Israel is interested in curbing inflation - which is why he is raising interest rates.

In addition, it is worth noting that the Governor notes the war in Ukraine as well as the slowdown in activity in China that is causing a shortage of goods and a slowdown in the global economy.

More on Walla!

The governor raised the interest rate by 0.4%, to 0.75%

To the full article

Fighting inflation.

Bank of Israel (Photo: Reuters)

The increase has left most of us stunned, because in recent years the public in Israel has enjoyed a fairly low interest rate.

Therefore, the step taken by the Bank of Israel will have some economic consequences that are worth noting, since when interest rates rise, this means that the price at which we borrow money rises.

That is, the refund we have to pay on the amount our loan costs.

So how will raising interest rates affect the pocket of us all?

First of all, it will affect those who have taken out a mortgage and those who intend to take out a mortgage linked to the prime interest rate - the interest rate set by the banks and is at the same rate as the interest rate set by the Bank of Israel, plus 1.5%.

Banks will charge more money.

Mercantile Bank branch (Photo: PR)

How will the rise in interest rates affect us?

• The increase in the monthly repayment price of the mortgage by hundreds of shekels

• Loans for any need will be charged a higher debt repayment

• Increase in the cost of living

Governor of the Bank of Israel Amir Yaron (Photo: Reuven Castro)

The increase in the prime interest rate increases the monthly repayment of existing mortgage holders by an amount of about NIS 50 for each increase of 0.25% in the prime interest rate.

The rise in interest rates alone has raised the mortgage repayment by NIS 450 in the past six months.

Together with the increase in the average mortgage amount, which has risen by NIS 85,000 since 2021, the increase in the monthly repayment reaches NIS 830.

In addition, anyone applying to take a loan from the bank, whether it is students seeking to finance the tuition or whether it is a regular household, will be charged a higher debt repayment.

This figure may also affect the companies in the economy, which also take out loans from the banks - and some of them may have difficulty financing them.

Another effect that an increase in interest rates may have is another increase in the cost of living, since when the price of money rises, it also affects the businesses from which we purchase our products.

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