"We may have to raise the interest rate beyond four percent if inflation continues to rise"

"We may have to raise the interest rate beyond four percent if inflation continues to rise more than expected, and demand does not decrease." This forecast, which heralds for the first time higher interest rate increases than expected so far, was announced on Monday by the Deputy Governor of the Bank of Israel, Andrew Abir, at the annual financial conference of the Chamber of Accountants.
Referring to the economic forecast for the years 2023 and 2024, the deputy governor said: "We expect that in the coming year there will be a certain slowdown in economic activity, but not that we will enter a recession. Our expectation and forecast are based on the assumption that the interest rate will rise to around 4%. But we may have to raise the interest rate as well Beyond that, to the extent that inflation continues to rise, and demand does not decrease."
The deputy governor of the Bank of Israel added: "The increase in inflation is not only a result of problems in the production chain and the rise in commodity prices, it is also a result of strong demand in an economy that recovered quickly from the corona lockdowns. When we came out of the corona period, the states gave a lot of money to citizens. Some people had more money Now after the corona virus than before, and the demands were very high, and they are still high."
Abir referred to the fact that the banks were late in adjusting the interest rate on the deposits, but in addition to the criticism towards them, he pointed out that the public should be informed that there are other options besides the banks, and also that it is necessary to conduct negotiations with the banks on the amount of the deposits and to take advantage of the tools that the Bank of Israel has promoted for the benefit of the customers on this issue.
Later in his words, Abir also spoke about the housing crisis: "The solution is not only to free up land, but also to improve and build infrastructure. Governments manage to bring construction starts, to keep up with the growth rate of the population for one or two years, but they have to keep up with the construction rate of about 55 thousand housing units every year over 10-15 years - this integrates and illustrates the importance of infrastructure planning."
As a reminder, last week the Bank of Israel announced another interest rate increase and the seventh in a row, at a rate of 0.5% - in accordance with the upper range of the estimates. In doing so, the basic interest rate in Israel rose to 3.75% and the prime interest rate rose accordingly to 5.25% - the highest since 2008. Meaning: an additional increase in the price of a large part of the loans, of the interest on the minus and of the part of the mortgages that is adjacent to the prime rate.