"Home prices have never plummeted in Israeli history," said Bank of Israel governor nominee Prof. Leo Leiderman in January 2012. "We believe that there will be a single-digit correction in home prices. It will be a gradual and moderate correction, and there will be no major movement."
Leiderman's remarks were counter to predictions at the time of a 20% or greater drop in home prices.
At a conference on debt by rating company Midroog Ltd. in June 2013, Leiderman said that only the government could solve the housing shortage, not the Bank of Israel. "Without a change in policy to release land by the government, excess housing demand in high demand areas will increase in 2014-15, which will push prices higher. Against this backdrop, and assuming slower growth, the housing market should be turned into a key growth engine for the economy in the coming years."
In a lecture at Tel Aviv University in June, Leiderman expressed concern over Israel's slow growth rate. "We must not accept this current growth rate," he said. "Without the effect of gas exports, the economy is growing at 2-2.5% a year, well below its potential."
The Bank of Israel predicts 2.8% GDP growth in 2013, excluding the effect of natural gas production from the Tamar field.
As for the exchange rate, Leiderman said, "The return of the shekel-dollar exchange rate to NIS 3.66/$ reflects investors' opinion that the Israeli economy has potential in the medium and long term."
Leiderman's emphasis on stimulating growth could prompt him to take an expansionist monetary policy, like his predecessor, Stanley Fischer. This means keeping a low interest rate and taking measures to encourage exports, even if this helps boost home prices further. In the dilemma between restraining home prices and the mortgage market and stimulating exports, the Bank of Israel has already decided in favor of exports.
Published by Globes [online], Israel business news - www.globes-online.com - on August 1, 2013
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