"Despite the talk of a double recession, the forecasts of international institutions continue to be relatively stable," Governor of the Bank of Israel Stanley Fischer said today, addressing the Israel Export Institute Conference at the Dan Hotel in Tel Aviv. He referred to the International Monetary Fund (IMF) forecast, which predicts 9% growth in world trade this year (compared with 2009), while for 2011the IMF has raised its growth forecast slightly to 6.5%.
"We must understand that we are in period of a great deal of uncertainty," added Fischer, "Every day the mood changes. We are in a volatile period, and it's hard to know whether we have recovery, or a decline into a double dip." Fischer put the chances of a further recession at 25%.
Speaking about the Israeli economy, Fischer said, "Despite all the problems in exports, the balance of payments situation has improved." Fischer turned to the exporters and told them, "Your success in maintaining the level of exports is highly commendable, especially when one compares it to what has happened in other countries."
The Governor also spoke about the Bank of Israel's intervention in the foreign exchange market, and said that the Bank of Israel had no policy of defending the shekel-dollar exchange rate. At the same time, he noted that a 10% appreciation of the shekel leads to a 2% decline in exports.
"I have heard rumors that we are defending a particular level for the shekel-dollar rate; we won't do that," Fischer said. "The moment you draw a red line, you can be sure that you are inviting attack by speculators; we won't do that. We will not interfere as long as we think the market is more or less working properly."
Fischer went on to admit the inability of the Bank of Israel to contend with speculators in the currency market when he said: "There are more powerful forces than the central bank operating in the foreign exchange market; we cannot stand against them forever. There is much uncertainty in this market, and we are trying to moderate it, but we have no illusion that we can determine the exchange rate for ever."
Fischer also said that developments in the foreign exchange market could not be predicted: "The whole world was sure the euro go to 1 dollar - and just the opposite happened. Eighteen months ago, they said the dollar was finished, and to buy euros. In the foreign exchange market, it's very, very hard to predict what will happen."
Published by Globes [online], Israel business news - www.globes-online.com - on September 5, 2010
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