What comes after fixing the interest rate in Israel?
Business struggles in Israel, symbolized by a man holding money with the Israeli flag in the background, a downward arrow representing the economic crisis, and a declining investment chart highlighting the problems facing the Israeli economy. (Adobe Stock Photo)
The economic developments in Israel are sending multiple messages about the political behavior of the current coalition under Israeli Premier Netanyahu’s leadership.
At the beginning of April, Israel announced that it had extended the same interest rate, keeping it steady at 4.5%, for the 10th time, as it decided back in February 2024.
Although this decision targets short-term loans, understanding its implications could help understand how Israeli politicians think and what the Israeli economy might look like in the future.
There is no doubt that Israel has witnessed several challenges in its economy over the last 15 years; some are global, such as COVID-19, while others are related to its limited clashes in Gaza, such as those in 2012, 2014, 2021, and finally, the recent war with Hamas, which began in 2023 on Oct. 7 and took another turn with clashes against regional non-state actors like Hezbollah and the Houthis simultaneously.
These incidents have been significant factors illustrating how the Israeli economy is facing consistent challenges regarding its performance, which could ultimately have severe implications for the Israeli people in terms of inflation if these escalations continue.
With the current war in Gaza, the number of millionaires who fled from Israel reached around 1,700, according to Henley & Partners in collaboration with the global wealth intelligence firm New World Wealth.
This number is not insignificant for Israel, as it consequently impacts its image among investors.
The continued decline in the number of millionaires, coupled with the foggy economic challenges that the world is facing, including the new American tariffs imposed on Israel at about 17%—which are paused for the time being—will likely lead to increased discontent on the streets of Israel if the government decides to raise interest rates to compensate for its economic losses.
Although some analysts foresee that the Israeli economy will recover after the war, Israeli society seems to indicate otherwise. What is evident is that the day after the war will take us back to Oct. 6, when Israel had only one pressing issue: the judicial reforms dilemma.
These reforms were one reason many investors left Tel Aviv at the time, and their numbers have surged since Oct. 7, as mentioned earlier.
What we can forecast regarding interest rates is that they will not be evaluated based solely on the war. The two factors—the Trump tariffs and the judicial reforms—will influence Israeli decisions.
Raising interest rates in light of these factors might escalate public dissent against Netanyahu, while maintaining the current rate will continue to devalue the shekel in the market, with the current challenges Israel is facing.
Eventually, this would have an impact on Israeli society, which is largely dissatisfied with Netanyahu’s approach, especially in the context of the ongoing war with Palestine.
About the author: About the author: Mohamed Al-Dhuhouri is a senior researcher at TRENDS Research and Advisory, focusing on American and Israeli affairs.
