In an interview with CNN broadcast on Tuesday, Yaron also said that interest rates hikes would continue since in Israel and globally, "we are seeing stickiness of inflation", particularly in services.
"So we are determined, absolutely determined to bring
inflation back down to its target," Yaron said, referring to the
government' 1-3% annual target. "And if that means continuing
raising rates, and that is our primary tool, that's what we will
do."
Israel's inflation rate reached a 2008 high of 5.4% in
January and data released on Wednesday showed it easing to 5.2%
in February, above a Reuters consensus of 5%.
In a bid to contain inflation, the Bank of Israel has raised
its benchmark interest rate to 4.25% from 0.1% over
the past year.
The central bank next decides on rates on April 3.
While praising the 2023-24 state budget as fiscally
responsible, Yaron criticised the Israeli government's proposals
to overhaul the judiciary, saying the plan as of now could
weaken the courts' independence. "The process itself is hasty
and does not have a wide agreement in the public," he said.
A number of Israeli high tech firms have already said they
would pull money from Israel and keep funds from entering the
country if the reforms go through.
"In the long run, the implication might be basically brain
drain, etc," Yaron said. "And this is why this is needs to be
handled with care. This has huge implications. And this is why
it's imperative that we maintain the strength and independence
of this institution (courts) and this is done in a way that is
has a wide acceptance in the public and it's a transparent
process."
President Isaac Herzog announced alternative changes to the
judiciary on Wednesday in response to the planned overhaul by
Israel's far-right coalition. But the Israeli cabinet's
secretary confirmed the coalition was not behind the new
proposal.
INFLATION
Yaron blamed much of high inflation on fiscal stimulus during the COVID pandemic that helped fuel consumer spending. "It will take a little bit more pain, probably in order to bring inflation back down to its target," he said, rejecting the notion of "pivoting" - ending the aggressive rate hike cycle - at this time. "We know and there is experience in the past that if you stop too early, inflation can come back with a vengeance," Yaron said. "And therefore I predict that at least around the world, we will see rates continue to go up and they will stay up for quite a bit." The European Central Bank on Thursday is expected to raise rates by 50 basis points to 3%, while the Federal Reserve is seen raising its benchmark rate a quarter of a percentage point next week and again in May.
Israel's shekel was 0.2% weaker versus the dollar, while share prices slid 1.6%. When asked about recent comments from some in the government who were critical of interest rate hikes, Yaron said he was not worried the independence of the central bank was at risk. "Any country that has tinkered with, let alone weakened, the independence of the central bank has suffered dire economic consequences," he said. "I believe all of our leaders and decision makers ultimately understand this." (Reporting by Steven Scheer; Editing by Toby Chopra and Raissa Kasolowsky)
Messaging: steven.scheer.thomsonreuters.com@reuters.net; Twitter: @StevenMScheer))