Ten-shekel pieces
Ten-shekel piecesIsrael news photo

The International Monetary Fund’s annual report on Israel’s economy has praise for Bank of Israel's Governor Stanley Fischer's policies, but warns that slow world growth could affect Israel.

The Bank of Israel and the Finance Ministry released a synopsis of the International Monetary Fund’s (IMF) report on the Israeli economy of 2009. Entitled 2009 Article IV Consultation with Israel, the report notes that Israel adopted “strong policy measures in response to the impact of the global crisis," and that “the resilience of the Israeli economy during the global crisis reflected strong policy responses, robust fundamentals, prudent bank supervision, public debt reduction, and structural reforms in recent years."

"The global outlook remains highly uncertain,” however, according to the IMF, “and the slower medium-term global growth would have adverse implications for Israel’s potential growth rate." Israel must therefore strengthen "long-term anchors in Israel’s policy frameworks to allow a flexible response of policies to short-term developments and to stimulate long-term supply."

The IMF predicts that Israel's gross domestic product (GDP) will grow in 2010 by 2.5%. The Bank of Israel's forecast is 3.5%.

The IMF praised Israel’s steps towards decreasing its intervention in the foreign exchange market and towards increasing interest rates. “Discretionary interventions should be formally terminated,” the IMF directors noted, “for all but the most exceptional market circumstances, once the policy interest rate is well above its effective floor on a sustained basis.”

The IMF praises Israel’s banking system, but called for “comprehensive banking stress tests, regular publication of a financial stability report by the Bank of Israel, and closer coordination among various regulators.”

Governor Fischer announced Monday that the interest rate would remain at 1.25%. Unemployment dropped slightly in the month of December, to 20,500 from 20,600 the month before. The shekel has dropped slightly against the dollar in the past two weeks; after reaching a year-long high of 27.27 cents two weeks ago, it is now down to 26.78 (3.73 shekels to the dollar).