Fischer: Israel in Good Shape

Israel is a relatively stable rock in the financial storm thrashing world markets, and the country is in good economic shape, Bank of Israel Governor Stanley Fischer said. "Certainly, Israel will be hit," he told Globes business news service. "We live in the world, and we're not an island, but our situation is relatively good, and better than I expected."

Our situation is relatively good, and better than I expected.

Fischer led the world last week in slashing the local prime interest rate by half percent, a move that European banks imitated in an effort to pump more money into their economies and stave off a threatening deep and long recession.

Like other central bank directors, Fischer fought against cutting rates while inflation surged, mainly as a result of soaring prices in crude oil. A lower interest rate usually fuels inflation even further because it encourages spending, which in turn increases demand and places an upward pressure on prices.

However, the crash in the crude oil market that has accompanied the crash in stock markets enabled Fischer more flexibility to act.  

"The decision to cut interest rates arose from the need to act to strengthen the economy's ability to deal with the challenges facing it," Fischer said in the interview.

He emphasized that the Israeli banking system does not face the disasters that have swept the United States, partly because of tighter regulations stemming from the shares fiasco three decades ago.

Fischer jointed out that the danger of a financial collapse in Israel ostensibly seems greater because of the ongoing political crisis but added, "The government's fiscal policy has remained fairly stable, and in the past six years, the results have been good."

He suggested that the shekel will strengthen in the near future and that the proposed 2009 budget is not totally realistic in light of projections of lower growth.

Israeli markets will be closed Monday, the eve of Sukkot and on the following day, but early indications in world markets Monday indicate that the free-fall has hit bottom, at least for the time being.

Foreign exchange trading will continue Monday morning, and the shekel-dollar rate is expected to revolve around the 3.60 level, with possible downward pressure if investors spend dollars in order to buy back American stocks.