Stanley Fischer: Central bank will continue to rely on market forces

The Bank of Israel may have broken an 11-year precedent and intervened in the country's foreign currency market last week, but Israel is no China and exporters must understand that competition will only grow, Governor Stanley Fischer said at a press conference yesterday.

"We shall continue to use the tools at our disposal to support economic growth, as long as it doesn't contradict our goal of maintaining price stability," Fischer said after the Bank of Israel bought up an estimated half-billion dollars on the foreign currency market last Thursday and Friday.

The Bank of Israel intervened because of a growing feeling that the foreign currency market had lost its anchor, and because of signs of herd behavior in the market, Fischer explained.

All the central bank sought was to rebalance the market. "Meaning, we added more dollars to our foreign currency reserves," Fischer said.

But he took pains to put expectations into proportion: It takes a giant like China with foreign currency reserves of $1.3 trillion to truly sway the markets, he said.

"We will continue to rely on market activity, unless we see irregularities, as we did, and we hope intervention will be rare," Fischer said.

He also suggested that it isn't the Bank of Israel's job to look after exporters hurting from the strength of the shekel.

"Every exporter must take into account that competition will only grow, which is natural in a growing, expanding economy," Fischer said.

For a decade the Bank of Israel managed to handle exchange-rate policy without intervening in the foreign currency market, Fischer said.

"Recently the shekel began to be less stable, more volatile, even when compared with the fluctuations by other currencies against the dollar," he said.

The shekel climbed not only against the hapless greenback but against other major currencies too.

Addressing rumors that the Bank of Israel might slash Israeli lending rates by a whole percent, Fischer said various sources were quoting certain central bank officials who propounded a 1% rate cut.

"I don't know the officials saying such things, but it's always interesting to read the reports," he quipped, saying no more.

Regarding the central bank's reversal ahead of the last rate cut, the governor commented that under the circumstances, the change was necessary.

The Bank of Israel must preserve its good name, he said, but it isn't its job to preannounce its decisions and moves.