By Steven Scheer
JERUSALEM (Reuters) – The more than year-long rift between Israel’s powerful parliamentary finance committee chairman Moshe Gafni and central bank governor Amir Yaron escalated on Monday after Gafni said the Bank of Israel chief did not deserve a second term.
Gafni, head of the ultra-Orthodox United Torah Judaism party, has been a staunch critic of Yaron since mid-2022 when the central bank embarked on an aggressive interest rate hike cycle to fight high inflation.
Against the backdrop of the economic uncertainty stemming from the war against Hamas militants, Prime Minister Benjamin Netanyahu last week offered Yaron a second five-year term and Yaron accepted. It now awaits cabinet approval.
“His (first) term is characterised by hurting the weak and constantly raising the interest rate and the burden on the public is terrible,” Gafni said at the start of the finance committee’s meeting. “He is not a good governor. He is a bad governor. The government is making a bad decision.”
Gafni’s UTJ party represents a constituency that is largely poor – very large families and only 50% of men working, with the other half focused on religious study.
The Bank of Israel responded to Gafni, saying it was “important that the dialogue between the Knesset (parliament) and the government and public institutions such as the Bank of Israel be professional and respectful and not be characterised by toxic and divisive discourse, which is inappropriate, certainly at this time”.
The interest rate was raised to 4.75% from 0.1%, leading to a spike in mortgage and other loan rates, while interest on consumer bank accounts initially barely rose and Gafni believed that the Bank of Israel did not push banks enough to help consumers. Last month, at the outset of Israel’s war with Hamas, he also called for rate cuts.
Israel’s inflation rate has eased to 3.7% from above 5% and remains above the government’s annual target of 1%-3%.
The central bank said that price stability was a condition for the normal operation of the economy and that interest rate hikes had prevented the economy from soaring inflation that would primarily hurt the weakest segments and damage families and businesses even more.
“It would be appropriate for the chairman of the finance committee to see the good of the entire economy, to be knowledgeable about the basics of the economy and also what is happening outside of Israel,” the Bank of Israel said.
“Then, he would have discovered that the actions of the central bank of Israel and the governor, in dealing with inflation, COVID and the war (with Hamas), are being praised by all international professionals.”
The central bank will decide on interest rates later on Monday at 1400 GMT. No rate move is expected, although the start of rate cuts could begin at the next decision in January, and Yaron will hold a news conference at 1415 GMT.
(Reporting by Steven Scheer; Editing by Alison Williams)
