Bank of Israel urged to cut interest rates in line with US and European policy

Israeli business leaders and officials are calling on the Bank of Israel to cut its 4.5% interest rate, which has remained static for the past two years. The call comes after the United States Federal Reserve recently decided to ease its interest to the range 3.75% – 4.0%. European markets have also cut their respective interest rates. 

Speaking on condition of anonymity, a senior Finance Ministry official explained why Israel’s central bank should follow the American and European markets. 

“There's no reason the cost of money should be so high for Israeli citizens, especially when the rest of the world is moving in the opposite direction,” the official said.

Looking ahead, the senior official warned that a failure to reduce the interest rate could undermine Israel’s future economic growth, which is linked to people taking loans and investing money into various sectors. Israel is reportedly currently the only advanced economy that has not eased its interest rate since the COVID-19 pandemic. 

Dovi Amitai, chairman of the Business Sector Presidency, urged the Bank of Israel Governor Amir Yaron to act quickly and ease the business climate in the Israeli economy. 

“Businesses are buckling under financing costs. A rate cut is essential to restore growth and send a message of confidence in the economy,” Amitai assessed.

Chen Shreiber, president of the Institute of Certified Public Accountants, echoed similar sentiments and stressed the need to act quickly and decisively in order to stimulate local investments. 

“The rate should be cut in the upcoming decision — and not just by a quarter-point, but by half,” Shreiber argued.

Ron Tomer, president of the Manufacturers Association of Israel, stressed that easing the interest rate was crucial to stimulate exports, which constitute a central component in the Israeli economic growth. 

“The delay is hurting growth and creating a dangerous gap between Israel and the global economy,” Tomer warned.

He further warned that a failure to act could threaten Israeli exports by strengthening the Israeli shekel compared to the U.S. dollar. 

The Bank of Israel is expected to announce its next rate later in November. 

Last month, the Israeli shekel reached its strongest position versus the dollar in the past three years. At that time, the dollar fell to NIS 3.28. This development strengthened Israeli purchasing power abroad and was subsequently welcomed by Israeli tourists. However, a strong shekel also hurts Israeli exports as Israeli products become more expensive in the U.S. and other international markets that trade with the U.S. dollar. 

“Exporters are already struggling to ship products to certain countries due to the ongoing war, losing buyers in the process. Now, the sharp decline in export revenues, particularly from dollar-based markets, could lead to losses that threaten the survival of many factories in Israel,” Israeli exporters warned last month. 

Israel is an export-driven economy just like other advanced smaller economies. 

The president of the Manufacturers Association of Israel warned at the time that the lower dollar rate threatened the income and viability of Israeli exporters. 

“The weakening of the dollar severely harms exporters, manufacturers and tech companies that earn in dollars,” Tomer explained. “Each drop in the exchange rate immediately translates to lower shekel income, eroded profitability and the risk of losing international markets."