Israeli Prime Minister Benjamin Netanyahu pledged that “nothing will change” with regards to the independence of the central bank, a bid to end uncertainty that may have contributed to a slump in the shekel.
(Bloomberg) —
Israeli Prime Minister Benjamin Netanyahu pledged that “nothing will change” with regards to the independence of the central bank, a bid to end uncertainty that may have contributed to a slump in the shekel.
His remarks on Twitter on Tuesday were a public response to his Foreign Minister Eli Cohen, who slammed the Bank of Israel for a recent run of interest-rate increases in a highly unusual attack the previous day.
“Under my leadership, the Bank of Israel law that guarantees the independence of the monetary committee headed by the governor in determining interest rates was passed,” said Netanyahu. “Nothing will change it.”
The shekel was the biggest loser among the world’s major currencies on Tuesday, losing as much as 2% against the dollar to trade at its weakest in close to three years.
Netanyahu’s remarks backed up a statement by Finance Minister Bezalel Smotrich, who criticized Cohen’s “populist statements” after the bigger-than-expected rate rise.
“The independence of Israel’s central bank is fundamental for our strong and innovative economy,” said Smotrich, who Cohen had called on to intervene in the committee’s decision-making process.
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 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 — adding to pressure on the shekel — pushing to limit its influence and strengthen the government’s power 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 proposed legislation 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.
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 and a surprise acceleration in the economy.
“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.”
(Updates with Netanyahu tweet for the start.)
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