Israel’s finance minister moved to defuse a confrontation over what he called “populist statements” threatening the independence of the central bank.
(Bloomberg) —
Israel’s finance minister moved to defuse a confrontation over what he called “populist statements” threatening the independence of the central bank.
The remarks on Twitter were a response to a rare call by another senior state official to rein in interest-rate increases. “The independence of Israel’s central bank is fundamental for our strong and innovative economy,” Finance Minister Bezalel Smotrich said.
Hours earlier, Foreign Minister Eli Cohen condemned the Bank of Israel for its decision Monday to raise borrowing costs for the eighth time since April and urged Smotrich to intervene.
The rebuff looks to draw a line under a brief standoff, signaling no imminent change of approach on monetary policy from the new government under Prime Minister Benjamin Netanyahu, who resumed power as head of a coalition with far right and nationalist partners late last year.
But his government has already gone into battle against the judiciary, pushing to limit its influence and increase the state’s ability to appoint judges, sparking widespread protests.
Governor Amir Yaron has previously warned that political interference could compromise the independence of the central bank, cautioning lawmakers in November over decisions he said might be a risk for Israel’s business and legal environment. The governor serves as an economic adviser to the government.
Cohen said Monday there was “no justification” for the decision to increase the benchmark rate to 4.25% — the highest since the financial crisis in 2008 — from 3.75%, a move that was bigger than forecast by most economists.
“I’ve asked Finance Minister Bezalel Smotrich to formulate a framework with the Bank of Israel governor to end the interest rate hikes,” he said on his Twitter account. The move “continues the mistreatment of mortgage holders,” Cohen said.
The monetary policy committee didn’t indicate when it plans to end its tightening cycle, a response in part to inflation which climbed an annual 5.4% last month to a 15-year high.
Israel’s economy also surprisingly accelerated in the fourth quarter of last year, though a political backlash against the government’s plans to reshape the judiciary has become a drag on sentiment in 2023.
“Foreign Minister Cohen would do better to delve into the data,” Yaron said. “It is desirable of course, certainly as foreign minister, that he understand the importance of an independent central bank. In every country in which there was damage to the central bank, we know what the end result was.”
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