Bank of Israel Governor Prof. Amir Yaron signals in an interview that if there are no surprises, such as a particularly high May CPI or a further depreciation of the shekel, this may be the latest interest rate increase. Regarding the distribution of coalition funds, the Governor said, "I would like every Haredi child to be able to enter the labor market equally, if he wants to enter the labor market equally, to have the skills," but that the budget does not exactly meet these principles, nor does it sufficiently address the cost of living.
MK Israel Eichler claimed this morning that you have failed to bring down inflation and therefore you must resign and even face "public trial."
"I have known MK Eichler's insights for some time. Already in 2019, I had a speech and a paper analyzing the importance of the ultra-Orthodox sector, the importance of imparting skills, and its importance for the growth of the Israeli economy. The numbers show that a 16% tax increase will be needed in 2065 depending on the simulation if demographics continue as they are, he was in that speech and after that event he diagnosed me as an 'anti-Semite,' so allow me not to comment specifically on the statements."
But on the merits, maybe the interest rate tool isn't really proving itself?
"Quite the opposite. The process of raising interest rates, which we are leading determinedly, receives high praise from all international bodies. You have to understand what would have happened if we hadn't done it. We would find ourselves in much higher inflation, even maybe double-digit inflation. As some other countries are experiencing. I want to remind you that in such inflation, income erodes and the weaker sectors are particularly affected. You might find yourself in a world where people turn to writing contracts, such as rentals, etc., in other currencies, which of course would make it difficult to make business decisions. Therefore, we must understand what was the alternative cost of our actions. We understand that the process of raising interest rates causes pain, but if we didn't do that, the pain would be immeasurably greater, and the risks of inflation deteriorating would be very, very high."
MK Eichler, Chairman of the Labor and Welfare Committee. Photo: Oren Ben Hakon
When will we see the process of interest rate increases stopped?
"Of course, I am not committing, and we examine every decision in accordance with the data and in accordance with the activity, as well as with a forward-looking view. First of all, it should be said that the current CPI did surprise to the upside, and not only us, within this index there is the travel component, which is more seasonal, and it was high, but overall we see that inflation is sticky. We also expect the next CPI to be high, but to the extent that there are no big surprises relative to the next CPI reading, to the extent that we do not see any events that will cause a significant depreciation of the shekel, we are already in an interest rate environment that we assess is sufficient to restrain the economy and bring us back to the inflation target."
In other words, the current interest rate increase to 4.75% may have been the last.
"It's important to understand that this is what we value, but it's not a promise, and as conditions change, we're determined and we'll do whatever is necessary, so there's no promise here. There is currently an assessment here that this is an interest rate environment, as we read the current conditions, as one that will be restraining and will lead inflation to fall back to the target. In any case, we will act according to the data, and we will do everything necessary if necessary."
Don't you feel alone in the campaign to curb inflation and should the government do more?
"A distinction must be made between the cost of living and the wave of price increases. In very specific events, such as the outbreak of the war between Ukraine and Russia, it is certainly possible that the government is temporarily assisting, but even in these things we see that sometimes it is difficult to get out of those temporary aids.
Regarding the cost of living, I repeat, Israel is expensive in a range of areas. In retail, we need structural changes here. In the area of housing, we must continue so that we will see moderation over time, which will also be reflected in moderation in rental prices, we must increase supply, and here we must have the momentum of building permits and planning, but also reach the recognition that tenders need to close at lower prices. And of course the issue of transportation. Unfortunately, for all three of these issues, whether it's retail, transportation or housing, there's no magic here that can be solved immediately, but reforms need to be made."
Here, too, changes are needed. Housing, photo: Dudu Greenspan
At the time you said that the budget approved by the government was responsible and restrained, do you still think so?
"The budget framework is restraining and in line with monetary policy, wage agreements are also like this. But within this framework, we don't see enough issues that are either growth generators, or that deal directly with the three issues I mentioned in the area of lowering the cost of living."
And what is your position on the distribution of coalition funds that certainly does not contribute to growth?
"Quite a few times, the distinction between what is a coalition and what is in the current plan is a bit vague, but the principle is important. At the Bank of Israel, there are analyses on the ultra-Orthodox sector all the time that we submit to the various governments that have been here. It is clear to us that for the sake of economic growth, at the individual level, I would like every Haredi child to be able to enter the labor market in an equal manner, if he wants to enter the labor market equally, to have the skills. On the macro level, we understand that in light of the demographic changes expected for the Haredi sector, there is great weight, and therefore it is important at the macro level that they join the employment market. It is important to do this in a way that will make it possible to preserve their way of life, both on the part of the employers and on the part of the government, and it is important that we find a way to bring them into the engine of the economy. And in that principle, the budget probably doesn't exactly meet them."
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