ALBAWABA - The Bank of Israel lowered interest rates on short-term borrowing for the first time in nearly four years. Simultaneously, the central bank urged lawmakers to curb spending that escalated during the Israel-Gaza conflict.
The central bank announced a 25 basis point reduction, bringing the interest rate to 4.5 percent. Amir Yaron, the Governor of the Bank of Israel, stated that the pace of future reductions partly depends on fiscal policy and Prime Minister Benjamin Netanyahu's commitment to responsible financial policies. He informed reporters that defense costs for the war are expected to reach 210 billion shekels ($58 billion), posing a "burden on the budget" that must be addressed by cutting spending in non-essential areas and increasing revenues through tax hikes.
Yaron highlighted the government's delay in making necessary budget adjustments, such as trimming unnecessary ministries without specifying which ones. The Ministry of Finance estimates a deficit in the Israeli government's 2024 budget of around six percent of the gross domestic product. Yaron emphasized the need for a responsible budget that requires challenging adjustments and decisions regarding priorities.
In statements to Reuters, Yaron noted, "There is always a balance between monetary and fiscal policy; if fiscal policy is more expansionary, monetary policy may need to take that into account," underscoring the importance of caution in light of future developments in the conflict.
