Finance experts: 'The party is over,' interest rates will continue to rise

Those waiting to pull the trigger on a loan from the bank may be waiting for quite a while yet, according to financial experts.

VARIOUS ISRAELI banknotes are displayed for an illustrative photo. The economy is well on its way to the pre-pandemic standards of budgetary discipline. (photo credit: NIR ELIAS/REUTERS)
VARIOUS ISRAELI banknotes are displayed for an illustrative photo. The economy is well on its way to the pre-pandemic standards of budgetary discipline.
(photo credit: NIR ELIAS/REUTERS)

Yet another hike in the Bank of Israel’s interest rate has left mortgage owners and loan takers around the country with another financial hurdle to overcome. The Bank of Israel on Monday increased the interest rate for the third consecutive month to 1.25%, representing a 0.50% increase from the previous rate of 0.75%.

Those waiting to pull the trigger on a loan from the bank may be waiting for quite a while yet, suggested Ofer Klein, head of the economics and research division at Harel Insurance and Finance. According to Klein, the latest increase in the recent series “signals that the process of raising interest rates is still far from exhausted.”

“The main reasons for this are the high inflation that will remain so at least for the coming year, the acceleration of world interest-rate increases that has contributed to the depreciation of the shekel and the strength of the labor market,” he said.

Based on the available information, Klein expects that Israelis can expect to see another rise in August of similar magnitude. Furthermore, a meager growth forecast and a strong inflation forecast point to the possibility of a significantly higher interest rate by the end of the year, he said.

“In light of these factors, the research division expects the interest rate to stand at 2.75% in about a year,” Klein said.

The party is over

 THE BANK of Israel headquarters in Jerusalem.  (credit: MARC ISRAEL SELLEM) THE BANK of Israel headquarters in Jerusalem. (credit: MARC ISRAEL SELLEM)

“The Bank of Israel is trying to show the public that the party is over.”

Aviram Tenenbaum

According to mortgage consultant Aviram Tenenbaum, “The Bank of Israel is trying to show the public that the party is over.” The public perception is that “in the last several years, money was very cheap,” due in part to the government’s eagerness to supply advantageous loans to buoy the economy during the onset of the COVID-19 pandemic, he said.

Back then, “it was an easy decision to take another loan, to take another mortgage, to leverage your situation, to make another investment,” he added. “People had the feeling that the situation was going to last forever, and it led many people to take big risks. Now that we’re [going] under, people are starting to understand that there’s a significant cost associated with the money that you loan.”

Tenenbaum has spent the last seven years volunteering his services for Paamonim, a nonprofit organization dedicated to providing struggling families with the knowledge and tools necessary to make wise financial decisions.

“It has an immediate effect on families’ cash flow,” he said. “In certain situations, the increase in the interest rate that we’ve seen in the last few months can get up to additional hundreds of shekels per month or, in some cases, even 1,000 [or] 2,000 or more.”

In light of this, Tenenbaum has been advising families to be cautious when considering taking loans.

“People have to be much more calculated,” he said. “They need to think more before they take any big financial steps, whether it’s taking a loan for investment or another mortgage to purchase a house for investment or even to live in.”

“Recently, we’ve seen that people took loans worth more than what they actually needed because it was so easy and cheap,” Tenenbaum said. “Today, we’re not there anymore. I would recommend people to take as much as they need, but no more than that.”