"The fact that we survived the last crisis without falling into a recession was thanks to the quality of thinking at this institution. I thank you,' said Governor of the Bank of Israel Prof. Stanley Fischer in his farewell press conference today. Fischer is stepping down on June 30, and Deputy Governor Karnit Flug will be running the central bank until Jacob Frenkel returns from the US in three months.
"We have a problem in housing. Obviously, the low interest rate has a positive effect on housing demand. So if prices rose fast, why didn’t we raise the interest rate? Quite simply, you don’t raise the interest rate when you are worried about what is happening to exports, which account for 30% of GDP while the added value of construction is 8% of GDP. If you have to choose between exports and housing, you choose exports.
"Had we tackled housing through the interest rate, we'd have caused the shekel to appreciate, unemployment to rise, and growth to slow. It's necessary to increase the housing supply. When you increase the supply of something, you lower the price. It's necessary to increase the sale of land, deal with the problem of the delays between a decision to build and when the apartments reach market. This currently takes 13 years, which is unimaginable."
Turning to his successor, Fischer said, "We've been very active in the management of monetary policy. It is vital to always stay ahead of the curve, to always be a step ahead, because current data describe the past. We were sometimes asked why we were the first in the world for all kinds of decisions. The reason is that we must look forward. Mistakes are made, but they can be corrected. It is better to do something than to sit and do nothing. We were very active, and I strongly hope that we'll continue to be active in the future."
Asked about Frenkel's appointment, Fischer gave him full support, saying, "I have known Jacob Frenkel for many years. He was a very successful and important governor. The markets we have now are thanks to him. He will continue to be an outstanding governor. As for the State Comptroller report - that's in the past. It was dealt with and he returned the money.
"Karnit Flug could be an excellent governor, but we had other candidates, and I am glad that we had the opportunity to pick a governor from many candidates. The world has greatly changed. The global economy has changed and Frenkel was here during a different reality. Keynes said that when reality changes, policy changes. Frenkel will examine the situation and he will make the appropriate decisions for the current reality."
Published by Globes [online], Israel business news - www.globes-online.com - on June 25, 2013
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