With very little enthusiasm, Israeli politicians have given preliminary approval to a bill that would completely change the policymaking framework of the central bank. The first reading was passed 22-2 (that’s 24 people voting out of a possible 120). Two further approvals are required before the bill can become law.
Currently, the central bank governor has sole responsibility for making interest rate decisions, after discussions and a non-binding vote by central bank department heads. The bank has worked this way since 1954.
Discussions have been underway for 12 years to move toward the European/American model, in which a committee or board cast binding votes on the interest rate decision. The current proposal is to create a six-member board headed by the governor. The six will include the governor, deputy governor, another senior central bank official chosen by the governor, and three external members appointed by the government. In the event of a tie, the governor would have the deciding vote.
The law would also create a board of directors, with a majority of members who are not bank employees, which is responsible for managing the bank.
Incumbent governor Stanley Fischer has said he would be more likely to serve a second five-year term if the board is set up. His current term finishes at the end of April. The bill has now been sent to the Finance Committee for discussion before it returns to the Knesset for its second and third readings.
