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May 25, 2023
This situation of political uncertainty, which focuses on overhauling the Israeli justice system, has also impacted the dire situation at the central bank. This situation prompted the Central Bank to raise interest rates again more than planned and tighten the monetary.
Deputy Governor of the Bank of Israel, Andrew Abir, said that after the central bank raised its benchmark interest rate by 25 basis points to 4.75%, this weakened the currency and fueled inflation in Israel. The risk premium on assets held by the Israeli public also increases.
Previously, the Israeli government was trying to push policy through changes that would give politicians more influence in selecting judges. That is, it directly limits the power of the Supreme Court to pass laws.
This plan has received many protests from various parties, and this has been going on for months. Because of this situation, leading economists gave their views and tried to present the best solution.
For now, Prime Minister Benjamin is under pressure, both from within and outside the country. The Israeli government is trying to negotiate a middle ground on this issue and has chosen to focus on approving the state budget before the month-end deadline.
If private consumption and inflation remain stubborn and stay in the 5% zone, this will present another open option. But for now, the Israeli bank is only focused on trying the monetary policy it thinks is best to keep the economy in the target zone.
On Tuesday, the Bank of Israel's 10th consecutive increase in the benchmark interest rate also lifted borrowing costs by 25 basis points to 4.75%. This is the central bank's way of cushioning the growth in inflation in recent years.
"Economic activity in Israel is at a high level and is accompanied by a tight labor market. Some indicators have some moderation, but tighter monetary policy and moderation in overseas activity will lead to a slowdown in inflation."
Inflation in Israel is sticky and high, and it should be noted that the level of inflation control is low compared to what is happening in other developed countries," wrote a bank statement in Israel.
The aggressive interest rate increases by the Central Bank of Israel are also to offset monthly payments. The governor of the Bank of Israel, Amir Yaron, said that the central bank still commits to doing everything it can to bring inflation back to the government's target range.
Meanwhile, Israeli banks have been the primary beneficiaries of high borrowing costs, but the public feels aggrieved. Meanwhile, Israel's economy grew by 2.5% in the first quarter of 2023, and this economic activity could have a significant economic impact.
Looking at what the Central Bank will decide on July 10, it is stated that the interest rate path will be determined according to activity data and inflation developments. Another rate hike cannot be ruled out, especially when this is the thing to do.
In the latest Israeli economic news, this is also accompanied by discussions about this country's financial budget. 208 economists said that Israel's budget talks could be the main reason causing Israel's economy to be in an increasingly worrying and severe zone.
This is due to the status of Israel, which has become a third-world economy. An increase in financial support and uneven allocation of costs provides short-term political consideration. The research clearly shows that the government can enable integration in the job market.
Enable integration into the labor market will help defuse the situation of the Israeli economy, which is now heading toward the Third World. The economic crisis of Israel shows the highest poverty rate, and one in five Israelis lives below the poverty line.
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