Fischer: Currency purchases aim to moderate market forces

Governor of the Bank of Israel says appreciation of the shekel leads to a reduction in exports.

By SHARON WROBEL
September 5, 2010 23:31
2 minute read.
BOI Governer Stanley Fischer.

stanley fischer. (photo credit: Louise Green)

 
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Stanley Fischer, governor of the Bank of Israel, said on Sunday the bank’s foreign currency purchases were aimed at “moderating market forces.”

Speaking at the Israel Export & International Cooperation Institute’s annual conference in Tel Aviv, Fischer said that the appreciation of the shekel leads to a reduction in exports.

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“An appreciation of 10 percent in the real foreign exchange rate causes a decline of 2% in exports, while the same appreciation leads to an increase of 2% to 4% in imports,” he said. “There are more powerful forces than the central bank operating in the foreign exchange market, and the central bank cannot have an impact in the long term.

There is much uncertainty in this market, and we are trying to moderate it to a certain extent, but exporters need to learn how to hedge against currency fluctuations and to adapt exports to growing markets.”

Fischer emphasized that it would be a mistake for the central bank to try and determine a particular level for the shekeldollar exchange rate, and that the bank did not have a policy of defending the shekel-dollar exchange rate.

“Local economic data of the past few years show that although during the recession period exports fell, imports at the same time declined even more, and therefore the balance of payments increased,” he said.


Fischer added that international comparison shows that the Israeli economy has benefited from a relative advantage in the production of hi-tech products, contributing significantly to the activity in exports.

Commenting on the most recent growth updates on the global economy, Fischer said despite the talk of a double-dip recession, the forecasts of major international institutions continue to be relatively stable.

“We are still in a period of a great uncertainty,” he said. “We are in a volatile period, and it’s hard to say whether there is a recovery emerging from the recession, or a decline into a double dip, but most leading economists put the chances of a further recession at 25%.”

Fischer referred to the most recent forecast by the International Monetary Fund, which predict 10% growth in world trade this year compared with 2009, while for 2011 the IMF has raised its growth forecast to 6.5%.

Bloomberg contributed to this report.

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