Summer Hag Yehia (Photo by Gilad Kolertzik)
Summer Haj Yahya issued an unusual criticism of the Bank of Israel today. Yesterday, the Governor of the Bank of Israel said that he attached great importance to shortening procedures, simplifying procedures and reducing the bureaucratic burden in order to encourage economic activity in Israel. Haj Yahya, for his part, replied today at a conference of the Aaron Institute that “the governor, and also Prof. Zvi Eckstein, addressed bureaucracy, regulatory distortions, and the importance of shortening proceedings, and rightly, and very rightly. (I) suggest that he start at home.”
Haj Yahya also said of the Bank of Israel’s determination to lower inflation by raising the interest rate, because “while official inflation is about 4%, in practice it is above what the CBS publishes and this is not the time and place to address distortions in CBS calculations.
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“Indeed, the source of inflation – on the supply side and the demand side, but will raising the short-term interest rate help? On the supply side, there are two victories that work to reduce supply: The interest rate will not help at best.
“On the demand side, too, there are two vectors that work to increase demand: an increase in total demand due to subdued demand, due to an increase in private savings out of the corona (both government-funded at the expense of the government deficit, and a halt in part of consumer spending, during the corona). % -2% on credit and not on deposits, will not materially affect the use of savings.
“Interest has no significant effect on sectoral pressures, other than those that are high in financing (such as vehicles or real estate). In my opinion, these factors are temporary and will be resolved soon. My conclusion: Inflation will continue in the coming months despite the rise in interest rates, and it will fall regardless of the rise in interest rates.
“At the same time, it is right to raise the interest rate in the short and medium term, because this is an opportunity to return the interest rate to a normal neutral level. So, raise the interest rate in the short term, but do not take credit. Bank of Israel”.
Regarding regulatory arbitrage, Haj Yahya said that tightening the regulation of banking supervision, like the recent directive, which applied retroactively, to confine additional capital to certain real estate transactions raises interest rates in the sector, real estate prices, and the continued rise in housing prices.
“On this issue, the governors, Bernanke and Yaron, addressed the importance of managing and maintaining overall financial stability. Bernanke also stressed the migration of risk from the banking system to the non-banking system (shadow banking). Governor Amir Yaron did not address the issue, and perhaps not by chance.
“The supervisory structure in Israel leads to a tightening of supervision and risk management by the banks, but to a migration of risk to less supervised areas and higher financing costs. The economic financial risk, which is the responsibility of the Bank of Israel, is rising. Then he will take responsibility.”
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