Governor of the Bank of Israel Amir Yaron at the Maariv/Maariv conference
The entire economy is on alert this morning for the Bank of Israel's interest rate decision, which will decide businesses and families to continue the burden of financial enslavement on their loans or to begin adding weight to the trend of interest rate increases.
The capital market does not remember a time when the entire economy was in uncertainty about the decision before it was made, and opinions differed about its direction.
The options are between leaving the interest rate unchanged at 4.5%, which puts the prime interest rate at 6%, and lowering it by about a quarter of a percent to 4.25% and thereby lowering the prime interest rate to 5.75%.
The fractions of the percentage may be depicted as low, but they represent billions of shekels, and no less than that - destinies of businesses. But while presenting the issue from this direction leads to the thought that this is the right step to take, a decision to lower the interest rate too early could harm the entire Israeli economy, and even contribute to the cost of living.
Yaron The percentages may appear low, but they represent billions of shekels, and no less than that - the fate of businesses / Avshalom Shoshani
How dramatic is the interest rate decision? And why can we all be calm that the financial "Solomon trial" fell into the hands of the current governor Prof. Amir Yaron?
Eyal Haim, VP of Marketing and Sales at Ayalon Mutual Funds, says that "from the point of view of the entire economy, the interest rate is the most influential economic figure, since most loans in the Israeli economy are at a variable interest rate, which is influenced by the prime, which is influenced by the interest rate set by the Bank of Israel.
"In other words, how much the mortgage, the car loan or the studies will cost us, and the loans or credit for the business, are determined by the Bank of Israel interest rate, which is decided 8 times a year.
"It is important to emphasize that the interest rate, in general, is down, both in Israel and in the world. The year 2024 is a year of interest rate cuts and that is indisputable. At the same time, there is a disagreement between the various professions regarding how much it will decrease and at what rate.
"The examination of the decision that will be made by the Bank of Israel today is being done against the background of the war when the local economy is in a difficult situation, with difficulties experienced by some of the economic locomotives biased towards financing such as real estate, and businesses that started with great growth that stopped with the increase in interest rates such as green energy.
"The expectation was that every 1 out of 8 decisions would lead to a decrease in the interest rate, but after the Bank of Israel left the interest rate unchanged for the last time, the market made a U-turn in its estimates, and the expectation today is that there will be only 3-4 interest rate cuts this year, with each reduction being a quarter of a percent ( 0.25%)".
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The announcement of the rating agency Fitch about the negative forecast is also a negative incentive for this time to download/ShutterStock
And what will the governor do? According to Haim, "The question of whether the Bank of Israel will lower the interest rate tomorrow or leave it unchanged is difficult to answer, as there are significant considerations for both lowering it and keeping it.
" Financial for breathing, which can be provided through the discounting of money. Even a quarter of a percent will make it easier for businesses that are biased towards financing such as real estate companies, and for households that are in the red and under the burden of mortgages
. Lower the interest rate - he will lower it.
"On the other hand, the March index is expected to show an increase in the price of clothing, footwear and housing, and the war led to an increase in taxes such as the VAT, the cigarette tax and the excise tax. All of these, along with additional price increases, add to the inflationary pressures that are expected to contribute to an increase of about 1.5% to the consumer price index.
"In addition, it must be remembered that the lowering of interest rates in the US is also delayed, and that lowering interest rates in Israel could divert funds from the shekel to the dollar, thus making the dollar more expensive and adding to the cost of living. After all, there is a transmission between the exchange rate and the index of approximately one third, meaning that with the dollar rising by 1%, inflation will rise by about 0.3%.
"If all this is not enough, then the Fitch rating agency's announcement of the negative forecast is also a negative incentive for a downgrade at this time. Because although it did not lower Israel's credit rating, a negative forecast is most likely a precursor to a downgrade that comes in about six months to two years "
Besides
the importance that many attach to the governor's decision today, it is important to remember that next May another decision concerning the interest rate is already expected. If an interest rate cut is decided today, then it can be estimated that there will be no further cut in May. On the other hand, if no download is made today, then the expectation is that one will be made in May."
Eyal Haim "Looking at the economy as a whole, the interest rate is the most influential economic figure, since most loans in the Israeli economy have a variable interest rate, which is affected by the prime, which is affected by the interest rate set by the Bank of Israel"/Ayalon Mutual Funds
No one envies the 'lesser evil' decision that Governor Yaron will have to make, which will decide between the balance of the economy's hopes for easing the financial burden it carries due to the high interest rate, and the balance of the national economy which is still in a state of uncertainty. But whether the decision will be in favor or favor, the whole economy is united behind his tenure.
Haim explains that "the governor is seen both in Israel and in the world as a professional official, and one who is freed from all political pressures in light of the fact that he was supposed to finish his term and is not dependent on one or another factor for the extension of his term or anything similar. Therefore, any decision made by him will be adopted by the entire economy, alongside the difficulty this may create for some of its members."
More on the same topic:
Amir Yaron
Bank of Israel interest rate
Prime interest
Bank of Israel