"We will continue buying foreign currency because we are in the middle of a recession and not close to the end of it," Bank of Israel Governor Stanley Fischer told a conference of internal auditors in Tel Aviv.
Fischer explained that the decision to buy foreign currency taken last July resulted from the belief that the global economy was entering a recession, which was expected to affect Israel.
He said, "We were not prepared to let the economy go into a recession with the shekel so strong and having a negative influence on exports. On top of that there was also a need to increase the state's reserves. Our people managing the reserves had already begun saying when I first arrived that our reserves were too small but we had a tradition of not intervening."
Fischer added, "The opportunity came about for two reasons. The first reason was because the reserves reached a total of NIS 45 billion and the second reason was because we were in the middle of a recession. There are discussions about whether we should continue to buy foreign currency. We are continuing because it is important to do so in the middle of a recession and we are not close to the end and we will not let the local currency get stronger."
Referring to the inflation target, Fischer said, "People in the country trust that in the long term the central bank and the government will succeed in maintaining stable prices in line with the targets that the government has set. The public expects and believes that inflation will be around 2% and that will be an important achievement."
He continued, "We have a very strong and entrepreneurial private sector and I believe in it."
Published by Globes [online], Israel business news - www.globes-online.com - on May 26, 2009
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