Israeli Central Bank: Judicial Reforms and High Interest Rates Pose Risks to Financial Stability

The Bank of Israel warned today, Wednesday, of risks threatening the stability of the banking system due to potential economic consequences of the judicial reforms proposed by the government, as well as increased credit costs stemming from sharply rising interest rates. In its semi-annual financial stability report, the central bank stated that Israeli banks and insurance companies remain stable, noting the experiences gained by households and businesses during the COVID-19 pandemic which have strengthened their resilience to potential shocks. The bank cautioned against the impact of rising interest rates, having raised them to 4.75% from 0.1% in April 2022 in an effort to combat ongoing inflation. The regulatory body for the banking sector indicated that slow or moderate growth "has reflected an increase in risks in both real estate and financial markets, as well as rising credit costs. In light of this, households and businesses are dealing with a heavier debt servicing burden."