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April 3, 2023 11:38 am

Bank of Israel Warns Judicial Overhaul Could Lead to Economic Damage

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avatar by i24 News


People hold Israeli flags during a protest against Israel’s Prime Minister Benjamin Netanyahu’s new right-wing coalition and its proposed judicial changes to reduce powers of the Supreme Court in Tel Aviv, Israel February 18, 2023. Photo: REUTERS/Amir Cohen

i24 NewsThe Bank of Israel on Monday warned that the government’s planned judicial overhaul will lead to economic damage, shortly after it raised interest rates to 4.5 percent – the highest since before the 2008 global financial crisis.

Israeli economists have warned in recent months that the judicial reforms being advanced by Israel’s government could have grave consequences and potentially lead to a more “powerful” financial meltdown than they previously thought, pointing to other countries and research that indicates looming “long-term damage to economic growth and Israelis’ standard of living.”

Since the proposal of the legislation – which would curb the Supreme Court’s ruling on Basic Laws while also changing the composition of the committee that selects judges – Israel’s currency had fallen by as much as 2.2 percent. But the shekel rallied back and closed 0.2 percent stronger against the U.S. dollar last week after Israeli Prime Minister Benjamin Netanyahu paused the overhaul of his country’s judiciary.

The economic strain came to focus when the Bank of Israel lifted the benchmark interest rate for the ninth straight meeting, raising its key lending rate by 25 basis points. The decision came after inflation quickened at a faster rate than forecast in February, and as uncertainty over the repercussions of the proposed overhaul to the legal system has led to a slowdown in investments.

Its monetary committee raised the benchmark rate to 4.5 percent from 4.25 percent, the smallest increase since April 2022. It mirrored the U.S. Federal Reserve, which raised interest rates by a quarter of a percentage point last month amid global financial turmoil following the recent collapse of two American banks.

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