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Israel central bank backs steps to ease inflation and cost of living

Bank of Israel governor Amir Yaron and his banking supervisor have met with the competition authority to review the matter REUTERS/Ronen Zvulun
Bank of Israel governor Amir Yaron said the programme will help small businesses deal with the economic hardship arising from the war

Bank of Israel governor Amir Yaron has said a series of government steps aimed at easing inflation and the cost of living were reasonable, but that short term interest rates still could rise further.

Prime Minister Benjamin Netanyahu on Wednesday said Israel would cancel or cut back recent hikes in property taxes, water and energy costs, adding action was needed before the 2023 budget was approved in May.

“The measures to moderate the price increases of electricity, water and property tax, are reasonable, given that these are temporary measures,” Yaron said at a conference.

“One must remember that the best way to deal with the cost of living is to promote structural reforms that encourage competition in the various markets.”

Yaron said he was encouraged by comments from Netanyahu and finance minister Bezalel Smotrich about boosting competition, opening markets and reducing excess regulation.

Israel’s inflation rate reached a 2008 high of 5.3 percent in November, while the overall cost of living has soared, angering the public.

The Bank of Israel has responded with an aggressive interest rate cycle that has taken the benchmark interest rate to a more than 14-year high of 3.75 percent from 0.1 percent in April in a bid to return inflation to an official annual target of one to three percent.

The rate, which was last raised a half-point last week, is expected to reach at least four percent at the next decision on February 20.

“To ensure that the inflation rate moves back to its target, we are likely to see rates stay around four percent for some time,” Yaron said, citing the bank’s main scenario.

Rates could climb higher, however, if inflation accelerates, Yaron said.