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Banks hoard cash

The Bank of Israel has reduced the interest rate to a symbolic 1%, making credit resources essentially free for banks. Israeli banks, though, do not need extra resources as they are flush with cash, which they refuse to loan because of the uncertain economic situation.

Bank of Israel’s attempts to inject liquidity into the markets and whip them back into business activity confront the traditional conservatism of Israeli banks and economic gloom generally.

Theoretically, ultra-cheap loans should push the companies to start mammoth infrastructure projects, boosting employment and economic activity. In reality, the immense post-socialist regulation stems business activity even in such urgent areas as water desalination and power generation.

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