"We now have large government deficits, and some people are asking why not make them even bigger. The answer is that we have no way of financing them. We're now beginning games of, "Why not 6.5% or 7%, what's the difference?" Those are children's games, and we won't play these games," said Governor of the Bank of Israel Prof. Stanley Fischer at the annual Bank of Israel and IMF conference in Jerusalem today.
Fischer said, "We're now examining the consequences of such a low interest rate. At the last monetary forum meeting, we considered following the Fed's policy of an interest rate of 0-0.25%, but we're still waiting at the moment."
Fischer obliquely commented on the relationship between the Bank of Israel and the Banking Supervision Department. "The banking system appears to be fairly healthy. The question is sometimes asked whether the proper place of the Banking Supervision Department is within the Bank of Israel. I read that this is problematic because the governor's interest rate decisions can conflict with the supervisor's bank stability target. It seems to me that is precisely the reason why the Banking Supervision Department should remain a part of the Bank of Israel. Both objectives should be coordinated. I don’t want interest rate decisions not to take the condition of the banking system into account," he said.
Fischer added, "There is no doubt that we were right to undertake the policy of buying dollars. This is especially important now, when global economic instability is so great. We'll continue the dollar purchasing program."
Commenting on fiscal rules, Fischer noted, "It's obvious that the fiscal rule of a 1.7% government spending cap increase cannot continue, because it doesn’t reflect efficiencies in public spending. Where the money goes is terribly important. It's not the same thing if NIS 1 million goes to defense or to education."
Fischer's comments also implied that further tax cuts should not be made without first examining the consequences.
Published by Globes [online], Israel business news - www.globes-online.com - on May 5, 2009
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