stanley fischer 88 298.
(photo credit: Ariel Jerozolimski)
Bank of Israel Governor Stanley Fischer sent a calming message to local and foreign investors on Monday, reassuring the market that there was no threat of a liquidity crisis in Israel and that the economy was in a good state to withstand the global subprime-mortgage collapse.
"There is no liquidity problem in Israel, the market is functioning well and we don't see any long-term effect from the US subprime-mortgage crisis on the local economy," Fischer told journalists at a special press conference in Jerusalem on Monday convened to discuss the recent jitters in global markets and their impact on the local market. "The government has passed the budget, which is a positive factor, exports are rising and all of our economic indicators show that the economy is in a good, even very good situation."
Fischer added that the central bank had conducted a survey among domestic banks that revealed they had no direct exposure to the US subprime mortgage market.
"The volatility we are seeing on the global markets started with the crisis in the US subprime mortgage market, which could have had a minor impact but the real problem was that there was much uncertainty about the extent and who was exactly holding them [the subprime debt], said Fischer, who previously has served as chairman of the International Monetary Fund.
Fischer explained that in particular in the years between 2003 and 2006, US banks and other financial bodies gave out mortgages at very minimal conditions, without down payments and at very low interest rates, which Israeli banks would not provide.
"At the same time, US real estate prices rose dramatically until the end of 2006 when the real estate market entered into a mini-bubble and prices started to fall in some areas in the US and so there are people who can't pay off their mortgages."
Commenting on the losses registered on the Tel Aviv Stock Exchange of late, Fischer said they were directly linked to fluctuations in world markets.
"We are part of the global economy and if there should be a slowdown in the global economy because of this crisis, Israel's economy will also be affected," said Fischer. "But since domestic demand and domestic consumption have been growing at a fast pace, while at the same time we have a large surplus in the current account, the economy is in a good position to deal with any changes in the balance of payments."
Meanwhile, Fischer strongly supported the recent measures undertaken in international markets in Europe and Japan and especially Friday's move by the US Federal Reserve to cut its discount lending rate by 0.5 percentage point to 5.75%.
"The action was important in stopping the continuing decline in the financial markets and a signal to the markets that the central banks will continue to contribute to containing the damage," he said.