The Freelancers Forum of the Histadrut labor federation has called on the Bank of Israel to cut its interest rate, which is set to be announced Monday evening.
“The interest rate must be cut to prevent the destruction of more businesses and freelancers,” the forum said, adding that a major challenge to freelancers and business owners during the Israel-Hamas War has been maintaining a positive cash flow as payments on loans and debt increase with higher interest rates.
A rate cut could also help mitigate some of the increased costs that freelancers and business owners are expected to face in 2025, including higher taxes due to the costs of the war, the forum said.
“Small and medium-sized businesses pay especially high interest on credit,” it said. “Lowering the [Bank of Israel] interest rate will help cut credit costs [for business owners], will make things easier for business owners, and will encourage growth and investment.”
The forum said its research, which it sent to Bank of Israel Governor Amir Yaron, shows that the interest rate can be lowered.
“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 Rami Beja, chairman of the Freelancers Forum.
“Without cutting the interest rate, businesses’ cash-flow problem will increase,” he said, adding that an inability to repay loans, “alongside zero engines of growth that we freelancers need, will cause a huge crash.”
A need for stability
The central bank’s Monetary Committee has emphasized the need for stability in the markets and price stability as factors contributing to its decisions to hold the interest rate unchanged. Setting the 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, saying inflation has remained high, and 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 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 that the central bank would leave the interest rate unchanged on Monday, but 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.