Excellence Investments Ltd. chief economist Shlomo Maoz criticizes Governor of the Bank of Israel Prof. Stanley Fischer's aggressive monetary policy. Fischer yesterday raised the interest rate by 25 basis points to 1.25%, his third such rate hike since August, demonstrating that he is more concerned about inflation than growth.
Maoz has said for months that the 0.5% interest rate earlier this year was inflating asset bubbles, especially in real estate.
"Very late, the Bank of Israel has realized that the low interest rate has caused price rises for assets, including housing, and that is one of the main reasons for the interest rate hike. This is the first time that the Bank of Israel refers to the rise in housing prices, which it now seeks to slow. Until now, the governor has completely ignored this problem, which he personally created, and the governor has even said recently that there is no housing bubble, an opinion I dismiss totally."
According to the Ministry of Finance, housing prices in Israel have risen 36% since the beginning of 2008 and 14% since the beginning of 2009. In its press release about the interest rate hike, the Bank of Israel noted, "The decision to increase the interest rate for January was taken in light of the inflation environment in Israel which is in the upper part of the price stability range, against the background of growth that is becoming more firmly based and the increase in prices of assets, including housing."
The Bank of Israel added, "This increase in the interest rate is part of a gradual process of returning interest to a "normal" level."
Maoz believes that upcoming interest rate hikes will be based on the rate of economic growth. He predicts that the interest rate will reach 3.5-4% by the end of 2010, above the analysts' consensus of 3%.
Published by Globes [online], Israel business news - www.globes-online.com - on December 29, 2009
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