Record-low Interest Won’t Affect Housing, Says Bank of Israel

Committee warns that government will need to raise taxes, cancel benefits to stay within budget in 2015.

Ofer Vaknin

The recent decision to cut Israel’s interest rates to an all-time low of 0.25% is likely to have minimal effect on the housing market, which is frozen in any case, concluded the Bank of Israel’s monetary committee when making the decision.

Five out of the committee’s six members supported the decision.

The government is likely to succeed in staying within its budget this year, but will probably not be able to do so next year if it doesn’t raise taxes and cancel tax benefits, predicted committee members. Next year’s difficulties will stem from the slowing economy, which is likely to bring lower tax revenues as well as higher expenses.

The transcripts were published yesterday. The discussions were held two weeks ago.

The committee members noted that the housing market – which has been subject to sharp price increases over the past several years, fueled in large part by low interest rates – is facing a period of uncertainty due to various proposals on the table to help buyers. One proposal would give some first-time buyers an exemption on VAT. Many would-be buyers are waiting for the government to act, so the most recent rate cut is likely to have only a minimal impact on the housing market, they concluded.

In addition, Israel’s pace of economic growth is unlikely to increase significantly until the global economy recovers, they added.