Look at the Israeli economy. What has happened to it in the last 18 months?
Well, if you haven't been following, what's happened is that unemployment got worse, wages fell, the shekel lost 15% of its value against the dollar, prices rose by 5%, stocks sagged and Israel's credit rating is bracing for a beating.
Now ask yourselves, could the Bank of Israel have done anything to avert these woes? Without the steps it did take, would the situation have been even worse? Maybe they actually made things worse?
Yes, it's been half a year since the prime minister dragged the central bank guv and the finance minister to a press conference by their ears. That's where the governor announced a 2% rate cut, and the finmin ¿ who boasted he'd come to "ensure" that the governor would really lower interest ¿ committed to cutting the budget by NIS 6.15 billion.
Finance Minister Silvan Shalom's prancing was no great surprise. But governor David Klein spurred many an eyebrow toward its bearer's forehead. He also astonished many of the central bank's chiefs champions over the years.
Why did he cut the rates so sharply? Why did he whip off the shekel's protection like a band-aid, with one sudden movement? Why do it as part of a dubious deal with the government? Why did he abandon his policy of slow, gradual, careful change for monetary policy?
Half a year after Shalom "verified" that Klein really would lower interest rates, the central banker has virtually eradicated his entire rate cut. Even if the rate hikes were justified, and it's hard to say they weren't, the proof is in the pudding. Klein lowered interest rates, then raised them back ¿ and our situation has gone from bad to worse.
Buckling under the pressure
Instead of being a pillar of sanity in the swamp of political interests and evasion of hard decisions, Klein sank into the muck. True, now he's correcting, but the damage has been done ¿ to the marketplace, and to the Bank of Israel.
Klein has squandered much of the assets his predecessor, Jacob Frenkel, accrued for the central bank. Klein began the last half-year with an 180o about-face in policy, and is ending if with another 180o turn. No such luck for the economy, which spent the half-year plunging like a stone.
Interest rates are about the same as when the December economic plan was launched, but the Bank of Israel is not the same Bank of Israel. The rate hike can't eradicate the glaring failure of the man at the bank's helm.
Klein should reach conclusions, a chief one being that the most valuable asset of a central bank is its credibility, conservatism - and strong stance, even to the point of mulishness, against the government and the business sector.
A central bank is like a supertanker that carries the whole economy in its belly. As such it cannot change direction to sharply, not in quiet seas and certainly not in stormy ones. Klein, as the ship's captain, let the government take over the helm.
The rate hike on Monday may signify that the Bank of Israel is returning to the path of righteousness. That would be a giant step in the right direction, but it doesn't right the wrongs or dim the glare of failure. And when the sudden rate hike comes just as parliament debates an economic plan that meets about a quarter of what the marketplace desperately needs - don't expect it to rally any time soon. Don't expect any miracles.