Governor’s remarks at the 2025 Statistical Bulletin Conference

 

Good morning.

 

I am particularly pleased to be here—this year, happily, to be here physically—and to open the Information and Statistics Department’s annual conference, which is being held to mark the publication of the annual report, “Statistical Bulletin for 2024”.

 

This event, which has already become an important tradition at the Bank of Israel, is an opportunity to stop for a moment, look back on the past complex economic year, and to summarize the main events in the economy as reflected clearly and precisely in our financial statistics.

 

In my remarks today I will refer to what Israel’s economy has experienced in the past year, the complicated challenges we faced when reaching decisions, and the crucial importance of the data in dealing with them, and I will conclude with some discussion of the challenges we still face in the near future.

 

The past year was undoubtedly one of the most difficult and challenging years for the State of Israel, from all perspectives.

 

Alongside the severe and painful adverse impact to the body and soul of thousands of citizens and soldiers, there is also the great pain of the hostages, some of whom have not yet returned home.

 

In addition to the human cost, the war that began on October 7 also brought with it a significant economic shock, at a magnitude and scope that we had not previously known.

 

The Israeli economy went into the current crisis relying on notable fundamental strengths—a relatively low debt to GDP ratio, a positive and stable assets balance, a robust high tech sector, and a tight labor market—even though these strengths moderated somewhat in view of the challenges that characterized 2023.

 

The fundamental strengths of the economy are what enabled the Israeli economy to minimize the negative impact and maintain stability, even in view of the unprecedented economic crisis brought on with the war.

With the outbreak of the war in October 2023, the Israeli economy faced a strong, sharp shock, which led to extreme economic uncertainty and very high volatility in financial markets.

Accordingly, the monetary policy at that stage focused first and foremost on ensuring stability of the markets and maintaining the orderly functioning of the financial system.

 

This was, among other ways, via special and unprecedented steps taken by the Bank of Israel, primarily the intervention program in the foreign exchange market.

 

It is important to me to speak a bit about this plan: in contrast to intervention plans activated by other central banks in the past, we did not set a specific exchange rate at which we were aiming.

 

Instead, we took a different approach—we set an intervention package worth $30 billion, and declared that the main goal was to ensure the orderly functioning of the market.

 

The market, which was well aware of the high reserves we held—over $200 billion—quickly understood the message, and ultimately we only had to actually sell $8 billion. This could be considered a form of QE-FX.

 

I can also share that major central banks in other countries are already studying this program, and are inquiring about our unique approach.

 

In addition, already in the beginning of the war we worked vis-à-vis the banking system to formulate a special outline that includes deferring loan repayments, and in some cases even a waiver of the monthly repayment for reserves soldiers and citizens who were evacuated from their homes in the North and South. Thus, even though the interest rate remained unchanged, we succeeded in easing the financing terms in a focused manner, adjusted to the population that was particularly adversely impacted as a result of the war.

 

In the beginning of 2024, and in view of initial signs of stability in the markets, and assessments that the intensity of the fighting was on a downward trend, the approach that the main challenge facing the economy is a notable negative impact on demand gained strength.

 

Hundreds of thousands of soldiers were called up suddenly for military reserve duty and were detached from their routine lives, tens of thousands of residents were evacuated from their homes in the North and South, and private consumption, which is a main driver of the economy, declined sharply, and uncertainty was high.

 

In such a situation, as part of the attempt to support the economy and to enable it to begin to recover, and in view of the decline in the intensity of the fighting at that point in time, the Committee decided in the beginning of 2024 to reduce the interest rate.

 

As 2024 progressed, the economic picture became even more complicated. The intensity of the fighting again increased, and as a result of the geopolitical developments the increase in the risk premium became sharper.

 

In parallel, supply limitations became increasingly more notable, and were reflected primarily in a severe shortage of manpower due to the lack of entry of Palestinian workers and a prolonged military reserves service at considerable scopes.

 

Many industries were adversely impacted, particularly the construction industry, which had delays in projects and a significant increase in costs.

 

In such a reality, in which the supply limitation becomes central, the monetary policy—which operates mainly on the demand side—adjusted itself: reducing the interest rate was no longer effective, as the increase in demand without being able to create and supply it would have led mainly to inflationary pressures, without a real benefit to activity.

 

In addition, the increase in the risk premium against the background of the geopolitical developments requires maintaining a high interest rate environment. Therefore the Monetary Committee adopted a restrictive and balanced policy over the rest of the time.

 

As you know, beyond the monetary policy, the Bank of Israel fulfills the function of economic advisor to the government, in contrast to most central banks worldwide.

 

The past year has illustrated how central and significant this function is to our work.

 

For many years, the conventional wisdom in Israel was that economic crises do not require rapid and notable fiscal intervention at the time of the crisis itself.

 

That is how it was in the crisis at the beginning of the 2000s, due to the dot.com crisis and the second Intifada, as well as the global financial crisis in 2007. In those two crises, the state preferred to retroactively compensate those who were adversely impacted, only after the event ended.

 

However, in the COVID-19 crisis, we at the Bank of Israel adopted a new approach: there are situations in which immediate and extensive assistance is required in order to provide some certainty to households and businesses, and to avoid long-term harm to the economy.

 

We also implemented this approach during the current war. The fiscal assistance, which was significant and was provided rapidly, helped to provide certainty and security to all the market participants and helped to get through this complicated period.

 

As in every area of economics—there are no free lunches. Fiscal help in the present will have to be paid for in the future, and in view of the marked increase in security expenses—current and expected—we recommended to the government to take significant adjustment steps.

 

Some of these steps were already adopted in the 2024 budget, but the main part, at a scope of approximately NIS 30 billion, is included in the 2025 budget.

 

These notable adjustments contributed to the reliability of Israel’s economic policy viewed by international markets and strengthened the stability of the economy.

 

As I have noted in the past, alongside the important fiscal adjustments, there was room to change the budget composition so that it would more prominently include growth drivers, steps to improve labor productivity—and a reduction of expenses that do not sufficiently contribute to the future growth potential of the economy and a lowering of negative incentives to go to work.

 

Among the numerous challenges that we have faced over the year, the sharp rise in the Israeli economy’s risk premium was especially notable. This increased sharply immediately with the outbreak of the war, remained volatile over the course of the year, and toward the end of the second half of the year it moderated markedly, among other reasons in view of the situation in the North and the government’s approval of the budget, with the required adjustments.

 

In order to deal efficiently with all these challenges, it was essential for us to receive high-quality, reliable, and precise data in real time.

 

Here, the Information and Statistics Department filled a central role—both in making accessible the economic and financial information that is essential to reaching the Bank’s decisions, and by developing and expanding advanced digital tools for the public.

 

This work assisted us in making more informed decisions, and at the same time strengthened the trust of the public and financial market participants in our ability to deal with the crisis.

 

These data enabled us to identify in real time the changes in the economic situation, to adjust the policy rapidly and more accurately, and to make informed decisions vis-à-vis the changing reality.

 

Simply put, in such a complex year, the data were an essential work tool that enabled us to navigate through the high uncertainty—and the Information and Statistics Department had a major role in that.

 

However, the importance of the data does not relate just to decision makers, but to the public as well.

 

In this regard, in recent years, as part of the consumer reforms that we promoted at the Bank, a wide range of digital dashboards for the public were developed, which present interest rate comparisons among the various banks on credit and deposits, bank customer satisfaction surveys, data on their financial statements, and other tools that help the public reach informed financial decisions.

 

These steps recently received important international recognition as well, when the Bank of Israel won a prestigious prize due to transparency and accessibility of high-quality banking information.

 

All this connects us directly to the goal for which we are gathered here today—the annual conference and publication of the Statistical Bulletin report.

 

Over the course of the day, professional and comprehensive reviews will be presented here, summarizing the main economic developments of 2024, with a particular emphasis on the public’s financial asset portfolio, debt trends in the economy, real activity, and changes in the foreign exchange market.

 

In addition, the Statistical Bulletin report includes several interesting and important analyses, among other things on patterns of household savings and investments, developments in equity and bond indices, foreign investment in Israel, and trends in the Israeli labor market.

 

To conclude, I would like to thank, personally and directly, every employee of the Information and Statistics Department. Your contribution is extremely essential to our economic activity, and I very much appreciate your professional, precise, and very important work.

 

I wish all of us a productive, helpful, and interesting conference.

May we all share days of security and quiet, the return of the hostages, and success of the security forces.

 

Thank you.