Israel's parliamentary Finance Committee on Wednesday approved a controversial bill that would revamp the framework for policymaking at the Bank of Israel.
Bank of Israel Governor Stanley Fischer, whose five-year term ends at the end of April, has hinged staying on for a second term on passage of the bill.
Moshe Gafni, the head of the committee, said in a statement: "We approved the new Bank of Israel Law after 50 years and there is no doubt it is historic."
Fischer welcomed the decision.
"This is a good law that will let the bank continue its work efficiently, transparent to the public, the parliament and the government," Fischer said.
Final approval is still needed by parliament.
Under the proposed bill, monetary policy decisions would be made by a six-member board headed by the governor.
The deputy governor and another central bank official, appointed by the governor, would be on the board. Three other external members would be appointed by the government, two of whom would be nominated by the finance ministry.
They must be Israeli citizens, have a master's degree or PhD and have at least five years working in the finance, monetary or economic sectors.
At present, the governor makes interest rate decisions alone after discussions and a non-binding vote by central bank department heads.
The Bank of Israel's main goal would still be price stability, but monetary policy decisions would target other objectives such as supporting economic growth and employment.
Debate on a law to replace the current one that has been in place since 1954 has been ongoing for 12 years.
A main sticking point in passing the law was the issue of supervising the Bank of Israel's wages. Fischer was opposed to the Finance Ministry's demand to supervise salaries at the central bank, which are among the highest in Israel's public sector.
The ministry believes it must supervise all public wages but Fischer has argued the central bank must be independent and free from all potential pressures from the government.
In a compromise, the prime minister will make the final decision on wages should the finance ministry and central bank clash.