Industry Leaders Welcome Bank of Israel Rate Cut, Urge Further Reductions

Abraham Novogratz, president of the Manufacturers Association of Israel, welcomed the Bank of Israel's decision to lower the benchmark interest rate, calling it a "correct step in the right direction." He acknowledged that the move recognizes slowing inflation and the ongoing damage caused by the strong shekel to exports. However, Novogratz argued the decision was delayed, noting that annual inflation has been within the target range since August of the previous year, standing at just 1.5% in July. Core inflation has also slowed to 1.4%, with projections for the coming year around 2.1%. He contended that with moderate inflationary pressures, maintaining a 3.5% interest rate was difficult to justify.

Novogratz further highlighted the shekel's appreciation, which has risen approximately 10.1% against the dollar year-over-year, currently stabilizing around 2.98 shekels. This strengthens the shekel for exporters receiving income in foreign currencies while paying expenses in shekels, eroding profits. He stated that leaving interest rates unchanged exacerbated this pressure on the productive sector, hindering investment, expansion, and business activity in Israel. He emphasized that economic data, including a 2.9% unemployment rate and an 81.3% labor force participation rate, does not justify excessive caution, as these indicators suggest easing supply constraints and wage pressures.

He urged the Bank of Israel to continue with faster, more consistent rate cuts while inflation remains near the target range, stating that the current decision should be the beginning of a path toward a monetary policy that aligns with current realities rather than reacting late. Dr. Muhammad Zahalqa, head of the Arab Industries Committee at the Manufacturers Association, echoed this sentiment, calling the quarter-point cut "an important positive step, long awaited, but insufficient." He described any interest rate reduction as a vital lifeline and direct support for factories, particularly for Arab manufacturers who have faced liquidity shortages and high interest rates as major obstacles to investment in technology and production line upgrades.

Dr. Zahalqa believes the rate cut will alleviate financial pressures, freeing up necessary liquidity for factory owners to maintain operations, enhance competitiveness, and invest in advanced technologies like artificial intelligence. He concluded by expressing hope for additional banking measures and real credit facilities from banks to ensure the rate cut's impact reaches factory operations, fostering expansion, financial stability, and job creation in Arab communities.