© REUTERS How do the increases in the prime interest rate from the beginning of the year affect the loans we took?
| Israel Today News in collaboration with loan4all
How do these jumps in the prime rate affect in real time? The interest rate with the explosive name “prime” is in total the Bank of Israel + 1.5% that the bank takes into its pocket.
As can be seen from the Bank of Israel data, the prime interest rate increased in accordance with the increase in the Bank of Israel interest rate.
To illustrate the magnitude of the damage, we looked at how much the average Israeli paid for the NIS 250,000 he took at the beginning of the year spread over 5 years at prime interest + 3%:
The Bank of Israel, which sets the Bank of Israel interest rate, has a big brother who sits in the US and is called the “Federal Reserve” or “Fed” for short, who came up with a “genius” idea to deal with the Corona crisis – unbridled dollar printing that can be used to fill any economic hole. The same money Zol “Tidalek” bonds and “Vahishka” stocks, among other things, brought in multitudes of start-ups, which managed to raise disproportionate sums and now must adjust the scope of their activities to the new reality.
Therefore, even if we reduce the private consumption of each and every one of us, thanks to the waves of layoffs that were in the high-tech industry and those that are still on the way, we will receive an upward trend, although moderate thanks to the decrease in exports and the import crisis in the automobile market, but still an increase.
Our advice for 2023: stay at work as much as possible, cut expenses and if you need a loan, check your credit rating, compare interest rates from banks and non-bank entities and choose the most profitable loan: a bank loan or a non-bank loan. Remember that the interest rate can be negotiated and it is also possible to lower the interest rate by pledging an asset in favor of the lender until the end of the loan payments.
What could we have done that caused this jump? The Fed’s “cheap money” will fuel stocks and securities from which we received a series of increases in the capital market, which turned into decreases very quickly after the bubble burst, and of course inflation in the American economy which, of course, made waves in Israel as well and together with the effects of the war in Ukraine, the decrease in the amount of domestic product and the increase in private consumption ( our part of the story) all the conditions were created that allowed Israeli inflation to soar towards 5% and beyond.
The Bank of Israel has adopted the American and British approach to fighting inflation by raising interest rates, which makes our loans more expensive and leaves us with less free money in our pockets, which should (hopefully) lead us to reduce expenses which will lead to lower inflation in the economy. Needless to say, the effect that the Bank of Israel expected to have from 7 interest rate increases in one year did not actually occur.
Read the full article on the Israel Today website