The Bank of Israel’s director held interest rates steady and is reportedly looking to government fiscal policy to spark growth.

By David Isaac, World Israel News

Bank of Israel Director Amir Yaron announced he would keep the interest rate unchanged at 0.1 percent on Monday.

In April, he had reduced the interest rate by 0.15 percent. It was the first rate cut in five years, an action meant to help small- and medium-sized businesses struggling during the pandemic.

Yaron opposes raising taxes, which would further burden struggling businesses. However, Israel’s new Minister of the Economy Amir Peretz has suggested policies that would necessitate doing just that.

When Yaron made his decision to cut rates last month, he said Israel wouldn’t hesitate to use all monetary means at its disposal, including the interest rate, to help the country exit the financial crisis.

However, now he would like to see economic improvement come through government fiscal policy by way of a growth-friendly 2020-2021 budget.

Another reason for holding interest rates steady is the slightly more optimistic forecast of the Bank of Israel compared to April. “The Department currently expects a contraction in 2020 GDP of 4.5 percent (compared with a contraction of 5.3 percent in the April forecast),” the Bank of Israel said in a statement on Monday.

The Bank’s unemployment prediction, however, became more pessimistic with the unemployment rate in the second half of 2020 expected to rise to 8.5 percent v. 8 percent in the previous forecast.

The newest forecast also shows the 2020 government budget deficit ballooning to 11.5 percent of GDP, up from the 11 percent estimate last month.

The Bank notes that although economies around the world are slowly returning to work, “the magnitude of the global economic crisis is still high.”

The Bank issued numbers in the event of a second wave of the pandemic. If the coronavirus strikes again, it expects 2020 GDP “to contract even more sharply, by approximately 8 percent.” The unemployment rate would spike “to 11 percent in the fourth quarter.”

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The prime minister reassured the public during a welcoming ceremony for the Bank of Israel’s new chief, Prof. Amir Yaron.

By Batya Jerenberg, World Israel News

Prime Minister Benjamin Netanyahu took the opportunity Monday, during the official appointment of Professor Amir Yaron as governor of the Bank of Israel, to state his confidence in the country’s financial stability following Sunday’s steep drop in the Tel Aviv Stock Exchange (TASE).

“I am certain that we will succeed in riding out the current turmoil in the capital markets,” he said regarding the five-percent drop in the TASE’s value on Sunday, which was the worst plunge in Israel’s stock market in the last seven years.

“The Israeli economy creates competitive value for the products and services that people want to buy. We have the ability to produce new products and open new markets,” the prime minister said.

Seemingly referring to mega-deals recently made with India and others possibly in the works in Africa and Latin America, Netanyahu noted that “the world’s markets are opening” to Israel. He also pointed to Asia, saying, “We are in an advanced stage of negotiations with China to develop a Free Trade Area.”

The quality of life in Israel is rising while the gap between rich and poor is getting smaller, Netanyahu said, adding that more people are employed “because the [financial] reforms forced the haredim [ultra-Orthodox] and Arabs to enter the work force.”

Although the country is financially stable, Yaron is taking on his new position during a challenging time in the local equity market, which has lost about 11 percent of its value in December, wiping out some NIS 85 billion in investments.

The TASE was not acting on its own, as worldwide stock markets have experienced widespread sell-offs this year. For example, Globes reported Sunday that the American S&P 500 Index has dropped 10% since January, while Nasdaq has fallen 14%. The Bank of Israel itself, which invested all of its $115 billion in foreign currency reserves in worldwide capital markets, will likely be on the hook for a $2 billion loss in 2018 because of the plunge in the share and corporate bond markets.

President Reuven Rivlin also addressed the ceremony, stressing the complete independence of the Bank of Israel in dealing with the fiscal matters of the state. He mentioned the recent announcements of price hikes in foodstuffs and electricity, which, he said, “were blocked – for now — by the quick intervention of the finance minister and his staff.”

“Keeping prices stable is one of the central tasks of the Bank of Israel, which is also the financial adviser to the government,” he added.

“The immediate challenge facing the Bank of Israel is the normalization of monetary policy – a process at the end of which the Bank of Israel will be able to act by using the tool of the interest rate to effectively stabilize prices in accordance with economic developments and stabilize the inflation rate at the center of the target range,” Yaron said.

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“It is our duty to always seek out the greatest talents in the field,” Netanyahu said, expressing pleasure that Yaron agreed to come to Israel.

By Mara Vigevani, TPS

Professor Amir Yaron, a professor of finance at the Wharton Business School, was named Tuesday as the next governor of the Bank of Israel.

Prime Minister Benjamin Netanyahu and Finance Minister Moshe Kahlon announced the appointment at a joint press conference at the Prime Minister’s Office.

“It is our duty to always seek out the greatest talents in the field, and I was happy that Prof. Yaron accepted my request and that of the Minister of Finance to come to Israel,” Netanyahu said.

“A person with great ability and independence must lead the Bank of Israel. Yaron meets these criteria,” the prime minister added.

Netanyahu thanked outgoing governor Karnit Flug for her “dedicated and excellent service.”

Kahlon said Yaron was chosen among excellent candidates to “meet the future economic challenges” and that the newly appointed governor is the “right person for the mission.”

Yaron, 54, holds dual Israeli-American citizenship and for the past 20 years has lived in the United States, where he is a finance professor at the prestigious Wharton School at the University of Pennsylvania and a research associate at the US National Bureau of Economic Research.

He grew up in Ramat Hasharon, a suburb of Tel Aviv. After graduating with an M.A. from Tel Aviv University, he completed his Ph.D. at the University of Chicago, specializing in asset pricing, investments, risk-return strategies, macroeconomics and finance.

The appointment will be presented to the Goldberg Committee, which vets senior public service appointments, before it can be approved by the government.

Flug, who has held the position since 2013, announced in July that she would not seek a second term following a dispute with Kahlon over government fiscal and housing policy.

“I will be happy to be at his disposal and assist him in entering into the position as required,” Flug said in a statement shortly after the appointment was announced.

Yaron will find a professional and dedicated team of management and employees at the Bank of Israel that “will help him to continue to conduct a successful policy in favor of the Israeli economy,” she added.

Other candidates for the position included Bar Ilan University Professor Ben-Zion Zilberfarb, Tel Aviv University Professor Efraim Sadka and Mario Blejer, a former head of Argentina’s central bank.

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