Bank of Israel Governor Yaron warns judicial reform passage could harm Israel's economy

Tel Aviv [Israel], July 11 (ANI/TPS): Governor of the Bank of Israel (BOI) Amir Yaron spoke about Monday's decision to leave the interest rate unchanged at 4.75 per cent. The main reason cited for the decision is an easing of inflation. But Yaron warned that domestic politics - specifically the government's judicial reform program - could harm the economy, joining those who say that passage of the controversial reforms will cause the world to lose confidence in Israel's stability.
"Since the second half of 2021, we have been in a process of tightening monetary policy, against the background of the major economic developments in the domestic and international environment," said Yaron. "These led us in Israel, as with other central banks worldwide, to adopt a determined process of interest rate increases, which we began in April 2022."
The Governor, however, said inflation has not been fully defeated and warned, "We are in an environment of great uncertainty, and there are several upside risks to inflation pressures. Therefore, it is important to me to note that it is certainly possible that we will need to increase the interest rate going forward, if we see evidence that the inflation environment is not moderating at a suitable pace. We are determined to return inflation to its target and to ensure price stability in Israel."
He said the Israeli economy is "robust and growing at a faster pace than had been expected," but also pointed to several economic data indicating some "moderation in the pace of activity."
"The job vacancy rate has been declining (particularly in the high-tech sector)," said Yaron, "credit card expenditures are moderating, real estate market activity is slowing, business credit volume to small and midsized businesses is stabilizing, and there is a sharp decline in funds raised by high tech companies."
Some of this is due to a continuing global financial crunch. But that might end if worldwide inflation rates decline.
And Yaron also spoke about Israel's ongoing political turmoil over the government's proposed judicial reforms. Many in the high tech sector have said if the reforms pass it will harm investment from abroad and some firms have already taken money out of the country.
"I have said several times in the past that due to the promotion of such reforms there was an increase in the level of uncertainty in Israel's economy, reflected in, among other things, the excess depreciation of the shekel and the underperformance of Israel's stock market," he said.
"Continued uncertainty is liable to have notable economic costs, as reflected in the risks to the Research Department's forecast, and some of which I noted earlier in my remarks. The IMF has also indicated, in its most recent report, the adverse impact from the continued uncertainty over time," added Yaron. "Therefore, it is important to bring back the stability and certainty to the Israeli economy, and to verify that legislative changes will be carried out with broad agreement, and will maintain the strength and independence of the institutions."
The full judicial reforms proposed by the government of Prime Minister Benjamin Netanyahu include a new law that would allow the Knesset to override Supreme Court rulings with an absolute majority vote of 61 out of the 120 members of the Knesset. This would include rulings that find new laws or government actions to be in violation of what the Court determines to be inherent democratic principles.
The political opposition in the country charges this would harm Israel's nature as a democratic state. There have been massive protests against the plan across the country since it was announced that have included the blocking of highways and even the main terminal at Ben-Gurion International Airport. (ANI/TPS)