Bank of Israel governor Karnit Flug explained the decision to leave the April interest rate unchanged at a press conference on Monday.
“In the past weeks, we have sensed a sharp jump in inflation expectations, and the rise is seen not only in the short term but also for the medium and long term,” said Flug. She noted the expectation that oil prices have likely bottomed out, the waning effect of prices lowered by government policy, and the rising pay in the economy as factors supporting inflation expectations.
However, Flug mentioned that the central banks in Europe and Japan continue to push negative interest rates, and emphasized that the monetary policy of the Bank of Israel “is expected to remain expansionary for a long time.”
“There are people who ask us if the Monetary Committee sessions have become boring and if the decisions are predetermined. I say the environment is more complicated than ever, the decision-making is not simple, and the sessions are very interesting,” she said
Flug also addressed executive pay at the press conference: “The current compensation levels of senior bankers damages the confidence in the system and makes it more difficult for banks to undertake streamlining programs that are of the utmost importance.
“Because of those considerations, we believed the legislature should intervene with legislation that sets reasonable maximum limits on compensation. As to the specific parameters including the ceiling and the adjustment - these were set in a rushed manner at the Knesset Finance Committee. And the question for which I do not have a complete answer is whether these parameters create a balance between the need to set a reasonable standard and other considerations like the pay gaps that could open up between finance executives and senior company officers outside the finance world.
The Bank of Israel chief then discussed the natural gas framework agreement which the High Court struck down on Sunday. “I hope a way is found to advance the development of the reservoirs and the investment in Leviathan, despite the High Court order. We supported the framework because we believe it increases the likelihood that Leviathan will be developed and adds to the market reserves.”
Asked specifically about the stability clause, she said: “It is the price the government must pay, because changes in the regulatory environment fomented uncertainty which affected decisions on investment in developing the gas fields.”
Published by Globes [online], Israel business news - www.globes-online.com - on March 29, 2016
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