Bank of Israel chief Yaron says next governor must be ‘independent’

JERUSALEM, Sept 5 (Reuters) - Bank of Israel Governor Amir Yaron said on Tuesday that if he decides not to continue for a second term, the next governor needs to be independent and exude confidence to financial markets.

Yaron, who also did not rule out more rate hikes should inflation pressures re-emerge, said he would make known his decision on another five-year term after the Jewish high holidays end next month.

"Whoever is the governor has to continue to be independent and to express the professional opinion in matters concerning the Israeli economy," he said in an interview with Reuters. "And that such a position provides confidence to the markets."

On Monday, the central bank denied a report by one of Israel's two main radio channels that Yaron would say on Monday that he will not seek to stay on when his current term expires at the end of the year.

While not tipping his hand, Yaron said the last five years have been "one of the most challenging" for any Israeli central banker ever, citing five election cycles, the Covid pandemic, the Ukraine-Russia war, inflation and the government's plan to overhaul the judiciary that has sparked mass protests.

Before his term ends, there are still two more inflation readings that will influence monetary policy.

"If we will deem that developments have been less favourable in terms of bringing inflation down, be it (economic) activity much stronger or inflation much more sticky than we expected, we will not hesitate to raise interest rates," Yaron said.

"We're absolutely determined to bring inflation back to the target and make it sustainably there."

On Monday, policymakers held the central bank's benchmark interest rate (ILINR=ECI) at 4.75% for a second straight time. It had raised the rate 10 times in a row from 0.1% in April 2022 before pausing in July. The next decision is on Oct. 23.

"We think we are at the right place," Yaron said, noting that a 4.75% policy rate should be restrictive enough to bring inflation back within its 1-3% target range.

However, although the annual inflation rate dropped in July to 3.3% from 4.2% in June, Yaron said the rate will likely be around 4% for August.