Bank of Israel Deputy Governor Andrew Abir held a professional meeting with financial forecasters on Tuesday, following a press briefing held in which he described the foreign exchange sales program implemented by the Bank a few days ago.
The Bank of Israel's main message to forecasters was the following: "Your expectations of sharp and rapid interest rate cuts are exaggerated."
Bank of Israel Deputy Governor Andrew Abir Photo: Bank of Israel
The logic guiding the Bank of Israel is simple: the Bank of Israel is currently focused on the foreign exchange market and the sharp depreciation of the shekel. A sharp interest rate cut would harm these efforts and lead to further depreciation of the shekel.
Since the beginning of the war, and following the publication of the lower than expected September CPI in the interest rate market, there is a high probability that the Bank of Israel interest rate will decline next week by between 0.25–0.5 percent.
Economists at major banks and investment houses wrote in their surveys that interest rates are expected to fall by 0.5 percent or even more next week. Citibank Investment Bank also estimated in its review yesterday that the interest rate will decline more sharply than market forecasts, by 0.75 percentage points to 4 percent.
As noted, at the meeting, the Deputy Governor emphasized that the Bank of Israel's policy focuses on stabilizing the markets and creating maximum certainty for the economy and the public at this time. The Bank came out with a dedicated tool for stabilizing fluctuations in the foreign exchange market, which contributed to stabilization and calm in other markets, and aspires that the other monetary policy tools will not challenge this goal in the immediate term. As the Governor said this week in his speech to the G30, "The main risk to inflation over the past nine months, and now even more so, is the depreciation of the shekel."
Citibank buildings in New York, photo: Reuters
At the same time, in order to substantially ease the payment burden of households and businesses and provide certainty, the Bank of Israel advanced a broad outline for deferring loans to the entire population, particularly those populations that were adversely affected, without interest and fees. The outline helps reduce the "interest weight" on the public at this time, in parallel with additional relief measures promoted by the government for households and businesses that were harmed.
At the same time, pressure is mounting on the Bank of Israel to lower the interest rate from politicians. Yesterday, it was MK Moshe Gafni, Chairman of the Finance Committee, who asked the Governor to lower the interest rate next week.
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