Against the background of rising interest rates around the world, the Governor of the Bank of Israel, Prof. Amir Yaron, is expected to announce tomorrow (Monday) a similar step in which interest rates in Israel will rise for the first time in three and a half years. According to many economists, the Bank of Israel is expected to signal further interest rate hikes later this year.
Many estimates suggest that Governor Amir Yaron intends to raise the interest rate from 0.1% to 0.25%, with some in the field believing that there is a possibility that the basic interest rate in the economy will jump at once and dramatically to 0.5%, that is, a 400% increase over the rate Current.
As mentioned, many banks around the world have begun a process of raising interest rates, when in the United States the interest rate was raised about a month ago by a quarter of a percent, thus joining the UK which raised the interest rate three times in a row at the end of 2021.
How does raising interest rates affect the economy?
There are several main reasons for raising interest rates:
The first reason is that the interest rate on the bank’s deficit is also rising and loans are rising, so it is less worthwhile to reach such a situation, and therefore consumption in the economy is moderating.
The second reason concerns the increase in the price of mortgages, which will require anyone who has taken out an old mortgage to recalculate the route regarding the linkage routes and may even seek to refinance the mortgages and change the interest rate.
Raising the interest rate will strengthen the shekel, which will of course weaken the exchange rates of foreign currencies and hurt exporters and help importers. A more negative step of raising interest rates is the almost certainly declining decline in the local stock market, in addition, raising interest rates could lead to an increase in bankruptcy and insolvency processes.