"The way in which monetary policy works affects the prices of assets. Money was cheap, and people told themselves that it wasn’t worthwhile keeping money in the bank, and they went to buy stocks," Governor of the Bank of Israel Prof. Stanley Fischer told the Knesset Finance Committee today, during a discussion on the conclusions of the Bank of Israel Annual Report for 2009.
"The gap between us and Nasdaq began to widen. We also had a strong banking and financial system; that was the intention. Housing prices also began to rise. Is that a bubble? We don’t see a bubble now.
"As for a real estate bubble, we must avoid complacency. Prices are rising relatively quickly, and the time will come when steps will have to be taken. The supervisor has already begun when he asked to deal with buyers groups, and whether there is a need for further measures. I can't tell you exactly when there's a bubble, but we're examining how to use the interest rate to deal with this problem, and we're looking into a ban on buyers groups."
On events in Greece and other debt-laden European countries, Fischer said, "If what is happening in Europe starts to affect the US, we will take a hit. But I don't expect that to occur." This was his first public comment on the crisis in Europe.
He added, "That is as long as we don't let ourselves stop maintaining the macro-economic framework and fiscal discipline." Fischer said any effect on Israel would be felt in exports rather than in the capital market. He noted that the shekel-euro rate was falling fast, but said that, "we are currently weakening against the dollar and strengthening against the euro there is a set-off."
On how things are likely to develop, Fischer said, "Greece has received enough loans not to have to go to the capital market for two years. The question is, what will they do with the time?
"According to the IMF, the US will emerge first from the crisis, but the recovery in Europe will be very slow. Three weeks ago, when they raised their forecasts, they knew that other countries will be dragged after Greece. I don’t think that they imagined the extent of it, however."
Published by Globes [online], Israel business news - www.globes-online.com - on May 5, 2010
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