"The banks are strong and their capitalization levels are much higher than they were two years ago. We've reduced our intervention in the foreign exchange market, and the shekel is at a reasonable level. The two-year budget was passed and the 2009 budget deficit will be lower than projected. Unemployment is beginning to decline, imports and exports surged in the third quarter, and demand rose rapidly," Governor of the Bank of Israel Prof. Stanley Fischer wrote in a special article for "The Economist" Hebrew edition.
Fischer predicts that Israel's debt-to-GDP ratio will fall to 77% by the end of the year, and that it will not rise over the next two years.
Fischer added that at the height of the crisis, the Bank of Israel had more than a few fears about the economic situation. "At the height of the crisis, there were concerns about the stability of our banks, and fear that the tycoons, especially real estate tycoons, might go bankrupt. To deal with this problem, the Ministry of Finance launched the safety net. In retrospect, it was discovered that it was not used, but its very existence was enough to calm the panic."
Israel's low interest rate resulted in a lack of investment alternatives, which pushed investors to the stock market. Some people claim that the lack of alternatives is the main reason for the rally on the TASE and world stock exchanges since early March, which some economists assert that goes beyond theeconomic recovery. Fischer does not disagree, and admits that the low interest rate boosted the TASE.
Fischer wrote, "The interest rate cut helped revive the bond market and the TASE, because investors preferred higher profits from what they could get on bank deposits."
Fischer added that while the economic recovery might slow down, he does not expect a double-dip scenario. Nor does he expect a plunge to a new low.
Published by Globes [online], Israel business news - www.globes-online.com - on December 23, 2009
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