Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: We've got IMF meetings, some.
Speaker 3: Yes, they are underware, the IF, the IMF, the World Bank,
Speaker 3: everybody seemingly meeting in Washington this week, and we've been
Speaker 3: covering all of it. Our colleague Bloomberg Surveillance co host
Speaker 3: Lisa Bromwitz is there. She's done a string of incredible
Speaker 3: interviews and she has another one for us here. Lisa
Speaker 3: will have to hand it over to you.
Speaker 2: Thank you so much. I really appreciate it. I am
Speaker 2: here with the Bank of Israel governor. I'm Mary Rown.
Speaker 2: He does run the central Bank. You also advise on
Speaker 2: financial policy at a time when the mood has clited
Speaker 2: and there is a real sense right now in Israel
Speaker 2: that something significant has shifted. How much can you count
Speaker 2: on the war truly being over when crafting policy right now?
Speaker 1: Well, Lisa, first, thank you for having me again. It's
Speaker 1: important to understand a Israel entered very well. The seventh
Speaker 1: of October. The seventh ob O October did negatively impact
Speaker 1: Israel in significant way, but the Israeli economy throughout these
Speaker 1: two years have shown remarkable resiliency. Now we're seeing that
Speaker 1: if this agreement we hope it proves sustainable that will
Speaker 1: bring sort of a lasting calmness and stability, and those
Speaker 1: are conditions that are definitely can unlock a lot of
Speaker 1: growth rapid recovery, both for Israel and maybe for the
Speaker 1: region at large.
Speaker 2: There's a lot of that has been incurred for during
Speaker 2: this whole endeavor. There's also inflation that's actually come in
Speaker 2: less than expected, which has opened the door. Maybe it's
Speaker 2: the possibility that maybe you could cut rates even before
Speaker 2: the November meeting. Is that a possibility.
Speaker 1: The first thing to say about inflation, Our monetary policy
Speaker 1: has actually proved itself in the sense that, in spite
Speaker 1: of the war, wars are usually inflationary, inflation has converged
Speaker 1: into our target between one and three percent all throughout,
Speaker 1: maintaining financial stability, which of course is very important. This
Speaker 1: was an encouraging CPI that came in. Right now we
Speaker 1: are at two and a half. But there are two
Speaker 1: fundamental forces that are working now with the cessation of
Speaker 1: the fighting. On the one hand, short they're short of
Speaker 1: labor supply that has been there all the time. We're
Speaker 1: going to see probably some release of reserve people, and
Speaker 1: that's going to help reduce inflation. We've seen the shekel
Speaker 1: appreciate part of throughout time, and in particular in the
Speaker 1: last due to the cessation of the ceasefire. Then those
Speaker 1: are basically putting downward pressure on inflation. On the other hand,
Speaker 1: the optimism is potentially bringing a boost to demand. And
Speaker 1: so with these two of setting forces, we want to
Speaker 1: see clarity a little bit on the forces that indeed,
Speaker 1: inflation is converging more firmly, and we have some encouragement
Speaker 1: by the CPI, but we want to see this continues
Speaker 1: to go. And we are because of the uncertainty even
Speaker 1: about the agreements and everything. When we move, we still
Speaker 1: have to move very cautiously.
Speaker 2: There's always uncertainty. Right now globally there's a lot of uncertainty.
Speaker 2: It seems like the uncertainty is so much more heightened
Speaker 2: at a moment when you have been at war for
Speaker 2: more than two years and now there's this question of
Speaker 2: what the permanent situation will be of the Defense Department,
Speaker 2: also what kind of permanent expenditures are going to have
Speaker 2: to be on the government. I'm just wondering if you
Speaker 2: have a sense of that or if that's also one
Speaker 2: of the variables that's up in the air.
Speaker 1: I think it is one of the variables that's up
Speaker 1: in the air. Part of it is we want to
Speaker 1: see that the cease fire and maybe Phase two and
Speaker 1: maybe even other normalization factors. Those will all affect the
Speaker 1: long run expenditures of military potentially at least now, from
Speaker 1: the fact that there is a cease fire and the
Speaker 1: planning was to go and advance longer into Gaza, that
Speaker 1: saves for the short run some fiscal cost. But I
Speaker 1: think this is one of the big assessment in terms
Speaker 1: of our fiscal situation is what are the expenses going forward?
Speaker 1: What is the growth that we can see in the
Speaker 1: coming years given the geo political situation. As I said,
Speaker 1: I think if we see stability, growth will come back.
Speaker 1: Israel tended to grow four percent, We're probably going to
Speaker 1: grow even more than that, at least in the short run.
Speaker 1: Recent economic activity in Israel showed VC money growing, We've
Speaker 1: seen credit card usage quite high. We've seen sentiment and
Speaker 1: trend surveys are being positive. And that's also related to
Speaker 1: your previous question regarding inflation. Why we still have to
Speaker 1: be cautious in how we deal with our monetary policy,
Speaker 1: you know.
Speaker 2: Picking up on the VC flows and some of the
Speaker 2: other inbound flows from overseas. There has been some reputational
Speaker 2: damage that Israel suffered. There have been a number of
Speaker 2: countries that have said that they're going to withdraw investments
Speaker 2: or limited investments into Israel. Have you seen those flows
Speaker 2: start to come back? Do you expect them to? Is
Speaker 2: that something that you're kind of trying to observe right now.
Speaker 1: So first, as I said, the last two quarters, we've
Speaker 1: seen VC money coming in in a very strong way.
Speaker 1: Prior to the ceasefire, we saw some discussions on sanction
Speaker 1: in Israel's is obviously a small open economy. Have to
Speaker 1: do everything in our power to maintain our openness and
Speaker 1: we do that. And I think with the ceasefire and
Speaker 1: the more it lasts, we will see some of this
Speaker 1: reputational risk hopefully get mitigated over time. And that's partly
Speaker 1: why I think this could unlock growth and bring us
Speaker 1: back to our potential and maybe even beyond.
Speaker 2: How big is the range right now in your growth
Speaker 2: that look? I mean, I know it's pretty wide everywhere,
Speaker 2: but for you, it's got to be extreme, extremely significant.
Speaker 1: No. I think if you look at our last analysis
Speaker 1: and that was before the ceasefire agreement. We basically assumed
Speaker 1: that war would kind of end at the beginning of
Speaker 1: twenty twenty six, and we assume that growth of two
Speaker 1: and a half percent in basically twenty five and about
Speaker 1: four point seven in twenty twenty six. And in some sense,
Speaker 1: what has happened now things have shifted one quarter ahead.
Speaker 1: That probably improves slightly twenty twenty five. The big issue
Speaker 1: is twenty twenty six. If this is a lasting agreement,
Speaker 1: and it moreover, if it develops into more normalization, which
Speaker 1: clearly some of President Trumps and US would like to
Speaker 1: get there, that could unlock even more growth in twenty
Speaker 1: twenty six. And be on.
Speaker 2: We're here in Washington, d C. The last time we
Speaker 2: were here, the discussion was all around central bank independence.
Speaker 2: Now it's about a question of detailrization, What is the
Speaker 2: new monetary order? What's been your big takeaway from these
Speaker 2: particular meetings being here.
Speaker 1: I think there's a lot of discussion on digitization and
Speaker 1: stable coins and what that might do to banking and fragility.
Speaker 1: That's one big issue private credit is that risk factors
Speaker 1: are asset market valuations in line, and of course the
Speaker 1: geopolitical uncertainty it's globally and what that might do and
Speaker 1: what that might trigger. I don't think there are definitive answers,
Speaker 1: but those are the things that minds are trying to
Speaker 1: figure out.
Speaker 2: From your perspective, given how significant the tech sector is
Speaker 2: in Israel, how much are you focused on the elevated
Speaker 2: valuations and the potential threat to financial stability, particularly because
Speaker 2: of how dominant that field is in Israel.
Speaker 1: So obviously Israel's locomotive engine is the high tech sector,
Speaker 1: and as I said, it's been very resilient, partly because
Speaker 1: it's very well diversified. Now everybody knows we are extremely
Speaker 1: frontiering cyber but we're also very good in medtech, fintech,
Speaker 1: defense tech. Now with all the investments in defense in
Speaker 1: Europe and otherwise, we have a lot of things to
Speaker 1: offer agro tech. So all these areas gives us a
Speaker 1: very well diversified portfolio of high tech. And obviously in
Speaker 1: the AI there's there's there's a lot of strong valuation.
Speaker 1: We tend to be particularly in more on the applied side.
Speaker 1: Uh So, I think time will tell what those how
Speaker 1: much benefits those new innovations bring in. But I think
Speaker 1: the Israeli sector in general is relatively diversified enough that
Speaker 1: it can withstand even shocks uh to to markets. In
Speaker 1: terms of UH the areas it is particularly.
Speaker 2: Placed in, Governor your own Thank you so much for
Speaker 2: taking the time. Always a pleasure that was, Governor Amir,
Speaker 2: your own of the Bank of Israel,