The increase in interest rates hurts business activity, and causes many businesses to raise the prices of their products and services.
These consequences are reflected in a survey by the Central Bureau of Statistics, published yesterday, on the subject of the impact of the interest rate increase on businesses in Israel.
The survey shows that the degree of damage to the companies' business activities as a result of the Bank of Israel's interest rate increase is high, and about 35% of the business managers define it as "significant".
Also, a high percentage of businesses in the hotel, industry and retail trade report a significant effect of the interest rate increase on the increase in the prices of the business's products - about 57%, about 43% and about 27%, respectively.
Bank of Israel // Photo: Contact,
The survey was conducted in December 2022, at a point in time when the interest rate was 3.25%.
It is important to note that since the survey was conducted, the Bank of Israel raised the interest rate once more, to the level of 3.75%, and this will probably not be the last increase.
Reducing demand in the economy
The survey population included the branches of industry, construction, retail trade, hotels and services.
The survey sample represents about 70,000 businesses in these industries.
In the questionnaire, managers in the various businesses were asked about the effect of this move on the financial situation of the business, and on future business plans.
On the one hand, the increase in interest rates causes a reduction in demand in the economy (which leads to lower prices), and on the other hand, it increases the cost of inputs for businesses and therefore may also lead to an increase in the prices of various products.
A high proportion of managers in the industries of industry and retail trade report a significant effect of the increase in interest rates on the increase in the prices of the business's products (about 43% and about 27%, respectively), compared to only 9% of the large businesses in the construction industry.
About 27% of the businesses in the survey population reported that their economic activity depends to a significant extent (to a very large extent/to a large extent) on bank/non-bank credit.
In the industries, hotels and business services, the proportion of businesses whose activity depends to a significant degree on bank/non-bank credit is higher than in the other industries.
The increase in interest also affects the recruitment of investors in the high-tech sector.
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