Bank of Israel Governor: ‘Coalition funds not encourage Haredim to work


The Governor of the Bank of Israel Professor Amir Yaron doesn’t believe that coalition spending in the Haredi sector will lead to an increase in employment in an interview with Maariv.

“For every Haredi child it is important to have the ability to choose, equality, and the option to go to work,” he said. “The demographics increase the weight of Haredi society on the economy. The coalition funds in the current budget do not meet this principle [of increasing employment], and do not encourage Haredim to go to work.”

The governor stated that he had already identified this problem in 2019. At the time, he called for an increase in Haredi working rates but had already determined that without a change in demography, a tax increase of 16% would be necessary.

Prof. Yaron also addressed the controversy surrounding attempts to increase the municipal tax fund, and had this to say on the topic: “The main idea of the fund was to have strong authorities, where taxes for businesses are high and property tax costs for citizens are low.” 

He added that “the fund is designed to change the relationship between property taxes for businesses and households. It is a correct idea, but the proposed mechanism is not good and will be fraught with distortions.” He continued by explaining that some authorities will receive a lot of funding based on their starting point in 2018 and that the fund will not help solve the housing crisis. 

Governor of the Bank of Israel Amir Yaron arrives to a cabinet meeting on the state budget, at the Prime Minister’s Office in Jerusalem on February 23, 2023. (credit: ALEX KOLOMOISKY/FLASH90)

Interest rate hike justified 

The governor defended raising the interest rate to 4.75% on Monday, saying: that “without the decisive steps to raise the interest rate, inflation in Israel would have become double digits. The public would have lost faith in the shekel, and people would have gone back to writing contracts in dollars.” Some factors leading to its rise were professional and others were linked to increased travel abroad. 

He has refused to rule out further rate hikes, saying: “If there are no surprises or further devaluation in the exchange rate – the current interest rate environment reflects a sufficient restraint of prices,” clarifying that “if we have to, we will continue to raise it.”

Prof. Yaron has also refused to allow politicians’ attacks to influence his decisions.

“I ignore the background noise and the politicians’ threats. There are no free meals in lowering inflation, even though we are trying to ensure that the damage is minimal.”

The governor confirmed that bank profits were expected to rise due to the interest rate hike, but that he hoped that banks would be attentive to their customers’ needs and return some of the profit in the form of increased interest on current accounts.

Regarding house prices, the governor said that there were already signs that developers were adapting to the lower price of land and increasing construction projects. Consequently, he hopes that this will translate into lower house prices for consumers and eventually leading to a drop in rental costs too.

He also said that he expected the housing minister to convene a meeting of the housing cabinet and tackle house prices as one of the main contributors to the cost of living crisis, adding that the “prices must be the government’s top priority”.

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