Bank of Israel Won’t Necessarily Follow U.S. Rate Raise

An anticipated decision by the U.S. Federal Reserve to raise interest rates this month will not necessarily mean that Israel will follow suit.

“We are living in an era of zero interest rates but soon for sure in the U.S., there will very soon be a change,” Bank of Israel Governor Dr. Karnit Flug told Globes on Monday.

When asked if the BOI would “become part of the same process,” Flug said, “Not necessarily. We are evaluating matters in Israel and both from the point of view of economic activity and inflation, and we believe that we need expansionist policies for a while.”

“If in the U.S. they begin to raise interest rates and in Europe, we have seen an expansion of quantitative easing, then that will put us in a new situation that we have never had in the past. Since the establishment of the euro bloc, monetary policy in the two blocs has always been in the same direction. The big question now is whether this will impact our markets. Israel sits between the two blocs. One-third of our exports are to the U.S. and one-third to Europe.”

Flug also explained her qualified support for the gas agreement: “You have to remember that prior to the agreement two important things happened: defining the tax regime, and defining the government take from revenues following the Sheshinski Committee; and we also defined energy security by defining how much gas we would keep and how much we could export. And now comes the agreement and we have to understand – this is the result of negotiations in which you don’t get everything that you want. It’s not ideal but it’s reasonable.”

Regarding the current rate of exchange of the shekel, Flug said: “We believe that the shekel has appreciated more than is justified by basic market forces.”