“The tool of interest is mainly used to boost economic growth and prevent inflation and therefore we may need to keep an expansionary economic policy and remain a low interest rate environment,” said Bank of Israel Governor Dr. Karnit Flug to the Knesset Finance Committee.

Flug added that there is even a possibility of negative interest rates. In her comments on the recently-released worrisome Bituach Leumi National Poverty Report, Flug addressed the poverty report, noting that “Israel is not exceeded the poverty level even though we are relatively high compared to other developed nations regarding inequality”.

Despite Dr. Flug’s confidence and optimistic report, committee chairman, MK Moshe Gafne addressed making progress in advancing social-economic improvement in society.

Gafne added “Being a financial consultant to the government, you encourage change. The social situation is a very difficult one. There is no solution yet regarding the matter of housing and housing prices remain high and major inequality still exists. If you are not a rich man in Israel, you cannot buy an apartment. Although today you sent a message of reassurance and I thank you so much but we remain very concerned”.

The Governor then briefed committee members regarding the situation in Israel in relation to the world economy and the Bank of Israel’s policy versus policy of central banks in Europe and the United States. “Central banks chose expansionary economic policy and a reduction in interest rates as the Bank of Israel. We are aware of an interest rate increase decided upon in the US, but for now it seems that the trend will change drastically. Growth between 2000 and 2015 was a bit lower than in developed countries and higher in developing countries. There is a close correlation between the increase in Israeli exports in world trade, stated Dr. Flug.

Flug then moved on to address the socio-economic situation in Israel, adding, “We rank very high on the inequality index but regarding the poverty rate (gross income prior to taxes) salaries are not high as compared to the international scale. That is to say Israel’s economy by itself does not produce abnormal poverty. But net income, after taxes, Bituach Leumi and pensions, the poverty level is high compared to the world. Transfer payments and allowances rescue people from poverty and taxes reduce inequality but the question is how much”.

Gafne reviewed the economic summary presented by Dr. Flug, stating he intends to summon the Governor for more comprehensive discussion regarding all of the matters pertaining to the economy in Israel. “There are socio-economic issues that demand immediate intervention by the Bank of Israel, including the housing shortage in Israel, which is intolerable. Currently only the wealthy can but apartments and governments to dates have done nothing about it. The current government is trying and may not rest for a moment until a solution to the housing shortage is found, so that young couples will be able to buy apartments. The Governor, who is the government’s economic advisor, must push to advance solutions to both the housing and to reduce poverty and the huge [economic] gaps that exist in Israeli society. I will summon the Governor for more comprehensive discussions on these issues” concluded Gafne.

(YWN – Israel Desk, Jerusalem)