Bank of Israel Governor Stanley Fischer.
(photo credit: Ariel Jerozolimski)
“We won’t let the Israeli economy develop a real-estate bubble and as a result develop problems in the financial market. We will prevent this,” Bank of Israel Governor Stanley Fischer said Thursday evening at a conference held by the Commercial-Industrial Club in Tel Aviv.
On the basis of the Bank of Israel’s Inflation Report, Fischer estimated that rents would rise 6 percent to 8% next year.
“We ask why housing prices continue to rise,” he said. “The answer is that this is a very good asset to buy with low interest rates, and that’s what is happening. We have started to raise interest rates, but people want to buy houses, and there aren’t more houses. The natural thing to happen is that prices rise.
“If new homes are built, we will presumably see a fall in prices and a disappearance of this problem next year. All the noise in this market will stop.
Supply is the key to this problem, and the government must take the necessary measures.”
Fischer said it was the Bank of Israel’s responsibility to see to it that a bubble does not develop.
“Our way is to take care of demand,” he said, “and we will continue to take steps such as those we announced last week to tell the banks: ‘What you are doing when you give a mortgage at a low but variable rate of interest is dangerous, and you have to set aside reserves against the possibility that people will not be able to pay the money.’ If necessary, we will take additional steps in the future. But I hope we won’t come to that. Supply should kick in and do the job. That’s better than any other measure.”
Regarding the dollar-shekel exchange rate, Fischer said: “The shekel is
appreciating against the dollar... All kinds of people around the world
are angry at the Americans and claim that what they are doing is causing
problems. It’s true, it causes us problems too when the shekel is
“But if we have to choose between a healthy American economy with a few
problems with the exchange rate, and an American economy that isn’t
growing and us feeling the effect here, the first option is preferable.
Until the US economy returns to substantial growth, the global economy
will not return to sustainable growth. And so in my opinion this is a
relatively low price to pay, if this measure helps the US return to
fairly rapid growth, and that is the aim of the central bank there.”