Bank of Israel chief slams interest rate law: A ‘serious blow’ to bank’s independence

Bank of Israel governor Amir Yaron warns that the advancement of a proposed bill that gives the finance minister authority in influencing minimum interest rates on consumer bank accounts is a “very serious blow” to the independence of the central bank.

In a letter sent to Prime Minister Benjamin Netanyahu, Yaron expresses his strong opposition against the proposed legislation asking him to intervene and remove it from the agenda.

The bill proposes that interest rates paid by the country’s lenders on checking accounts will be determined by the Bank of Israel governor but with approval from the finance minister. The proposed legislation, which was approved by a ministerial committee on Sunday, is expected to be voted on in the Knesset on Wednesday.

Yaron says such legislation will infringe on the central bank’s ability to manage monetary policy, as it would give the finance minister the authority to actually influence the interest rate in the economy.

“I am strongly opposed to intervention in the pricing of banking products and to setting a uniform price,” writes Yaron.

“Setting a price harms the activity of the market mechanisms, causes all the players to gather around the set price and thus suppresses competition and efficiency.”