The Freelancers Forum, which operates as part of Israel’s Histadrut labor federation, called last week on Israel’s central bank to cut the bank’s interest rate, which will be announced Monday evening.
“The interest rate must be cut to prevent the destruction of more businesses and freelancers,” the forum said, emphasizing that a major challenge to freelancers and business owners in Israel during the Israel-Hamas war has been maintaining a positive cash flow as their payments on loans and debt increased with higher interest rates.
The forum emphasized that a rate cut could also help mitigate some of the increased costs that freelancers and business owners are expected to face in 2025 as taxes are raised to contend with the costs of the war.
“Small and medium businesses pay especially high interest on credit. Lowering the BOI interest rate will help cut credit costs [for business owners], will make things easier for business owners, and will encourage growth and investment,” said the forum.
The forum conducted research, which it sent to the Bank of Israel‘s governor, Prof. Amir Yaron, and which the forum says shows that the interest rate can be decreased.
“We must stop the ongoing damage caused by the year of war, which could close tens of thousands of businesses and bring tens of thousands of freelancers to bankruptcy,” said forum head Rami Beja.
“Without cutting the interest rate, businesses’ cash flow problem will increase,” Beja added. An inability to repay loans, “alongside zero engines of growth that we freelancers need – will cause a huge crash,” he added.
A need for stability
The bank’s Monetary Committee has emphasized the need for stability in Israel’s markets, and price stability is a factor contributing to its decisions to hold the interest rate unchanged. Setting its benchmark rate is one of the bank’s main tools for maintaining price stability and fighting inflation.
The central bank has left interest rates unchanged for its past seven decisions, citing the fact that inflation in Israel has remained high and that the war has kept economic growth weak.
In its final decision of 2024, the central bank – also concerned about Israel’s investor risk premium, which has risen since the war began – left its benchmark rate at 4.50%.
While Israel’s inflation rate dipped in November, falling to 3.4%, it remained higher than the government’s target annual rate of 1-3%. Higher interest rates can reduce demand for goods and services, which slows inflation.
Twelve of the 13 economists polled by Reuters predicted on Monday that the bank would leave the interest rate unchanged but said that a cut in February is possible.
“We are some way from the next cut, as the Bank of Israel will likely require conclusive evidence of inflation moderating before a cutting cycle recommences,” Goldman Sachs economist Johan Allen told Reuters.
Steven Scheer/Reuters contributed to this report.