Hebrew Report: Would the Interest Rate Have Plummeted Sharply Starting Tomorrow? Gaps in the Approach Between Amir Yaron and Stanley Fischer

SadaNews Economic Translation - While Israeli Bank Governor Professor Amir Yaron clings to the "traditional economic book" and reserves heavy tools for extreme cases only, the legacy of the late Governor Stanley Fischer evokes a different era, during which the governor did not hesitate to surprise the market with off-schedule interest rate decisions and large-scale foreign currency purchases, according to a Hebrew report published by Globes which questioned: "Will the collapse of the dollar lead to a change in approach?"

SadaNews translated from the newspaper that upon taking up the position of Governor of the Bank of Israel in 2018, Professor Amir Yaron set a clear intention declaration: the exchange rate should be determined by market forces. It was indicated that he said at that time, according to SadaNews translation: "It is desirable that the exchange rate be determined without the need for significant intervention in the foreign exchange market," but he excluded cases of sharp fluctuations "that are inconsistent with the economic fundamentals of the economy." Since then, Yaron has established his image as a cautious governor committed to free market principles, intervening only in rare and exceptional cases, as described.

It added: "But in the reality of 2026, with the dollar dropping to unprecedented low levels, and entire sectors threatened due to the sharp decline in profits, his conservative monetary policy faces its biggest test yet. The comparison between Yaron's calm approach and the excessive activity that characterized the previous governor Stanley Fischer raises a fundamental question: Is it time for a change in approach?"

Between Conservatism and Activity: How Are Crises Managed?

Mody Shafrir, Chief Financial Market Strategist at Bank Hapoalim, said in an interview with Globes, translated by SadaNews: "In that speech, the governor expressed his economic conviction, as he believes in market forces and his conservative economic approach. During the COVID crisis between 2020 and 2021, he executed massive dollar purchases against the backdrop of the strength of the shekel, while inflation at that time fell sharply below the target."

Shafrir points out that Deputy Governor Andrew Abir has previously spoken repeatedly about the need for intervention to protect industry, but he only justifies this intervention today in the event inflation reaches the lower end of the target range, according to SadaNews translation.

On the opposing side of this debate, the newspaper clarified that it is represented by Stanley Fischer, who served as Governor of the Bank of Israel from 2005 to 2013 during a highly complex economic period and faced a major test with the outbreak of the global financial crisis in 2008. Unlike Yaron, who saw direct intervention in the foreign exchange market as a last resort, Fischer adopted an active and direct approach, considering that he was behind the significant increase in Israel's foreign currency reserves starting in 2008 when the dollar fell to about 3.2 shekels. Fischer's move shocked the markets at the time, as it was the first time the Bank of Israel explicitly stated that it was dissatisfied with market developments and wanted to halt the ongoing trend.

Jonathan Katz, Chief Economist at "Leader Shuki Hoon," says: "Each governor has his own monetary style. Stanley Fischer was very active, both positively and negatively. He used proactive measures before weaknesses appeared in economic data and would raise or lower interest rates at a close pace."

He added: "These changes are not always ideal for a market seeking certainty and stability in monetary policy. Fischer also used intervention in the foreign exchange market extensively. In 2013, he decided to neutralize the impact of natural gas on the current account through a previously announced intervention of billions of dollars to curb the rise of the shekel."

Katz points out that there is a similarity between the governors: "Yaron also intervened during the COVID period, and there is a significant similarity in the circumstances."

He added this week: "Despite the Bank of Israel's reservations, the more sharply the shekel rises, the greater the likelihood of intervention."

He also clarified that the Bank of Israel can rely on the precedent from 2013 when natural gas was discovered, when it was decided to buy foreign currencies equivalent to local gas imports. Between 2013 and 2018, $13.8 billion was purchased under a declared policy to neutralize the impact of gas on the current account, as translated by SadaNews.

He also referred to Yaron's intervention in the foreign exchange market in 2021 during the COVID period when the Bank of Israel announced: "The bank will buy $30 billion during 2021. The advance announcement of the purchase volume aims to give the market certainty about the bank's commitment to confront the sharp rise in the value of the shekel and support the economy against the impacts of the COVID crisis."

Katz believes that the current conditions are very similar if the phrase "COVID crisis" is replaced with "the repercussions of the long war."

What Has Changed for Yaron Over the Past Five Years?

Katz responds in his interview, translated by SadaNews: "In my opinion, intervention is approaching, as we are witnessing an increasing strength of the shekel and economic activity after the ceasefire with Iran. The survey of companies conducted by the Bank of Israel after the ceasefire was very weak; the commercial sector speaks of a partial and slow recovery after the collapse that occurred during March. This is very different from what we witnessed after previous military operations, and many companies express pessimism about the future."

He concludes by saying: "In light of the real economic data, the Bank of Israel may come to the conclusion that the time has come to intervene in the foreign exchange market to alleviate the harm inflicted on the exportable sector. This is not just about exporters, but also about manufacturers who supply the local market and compete with imports."

What Would Stanley Fischer Have Done?

One of the central questions raised by the Hebrew report, according to SadaNews translation is: What would Stanley Fischer have done if he were in Amir Yaron's position today?

A former official in the financial apparatus believes he would have acted in a completely different manner: "He would have lowered the interest rate immediately, by half a percentage point, without waiting for the scheduled decision in two weeks. And he might have intervened in the foreign exchange market in parallel. Would that have been good? I am not sure. The high activity and speed in the use of tools led to frequent changes in monetary policy."

Shafrir reminds that the former governor of the bank, Dr. Karnit Flug, had previously supported intervention in the foreign exchange market to support traditional industry, because the contribution of this sector to growth is not significant, but its weight in employment is high.

He said: "If profitability is very low, they need to be supported. And during Flug's time, inflation was close to zero, and intervention was a tool to bring it back toward the target range."

The War Changed Previous Expectations

Regarding the present, Shafrir admits that the war has changed his previous estimates: "If you had asked me before the war, I would have estimated that the Bank of Israel would intervene at the current shekel strength levels, assuming that inflation would decrease significantly toward the lower end of the target."

So What Prevents the Governor from Acting?

According to Shafrir, the main obstacle is political:
"Intervention now is problematic due to pressure from the US administration, despite the real concerns about the damage that could be inflicted on the local economy."

The Trump administration sends clear signals against central banks' intervention in foreign exchange markets, a policy aimed at protecting American exporters, but leaves the Bank of Israel with limited tools in face of the rising shekel.