Fischer: We Will Not Allow Housing Bubble to Cause Economic Crisis

'We hope the problem will be solved by the supply side,' says Bank of Israel chief.

Bank of Israel Governor Stanley Fischer vowed not to let sky-high housing prices lead the country's economy into a downward spiral yesterday.

"There are enough crises in the world that started in the housing market, and we will not let that happen in Israel," Fischer said at a news conference in Jerusalem. "We hope the problem will be solved by the supply side. If not, we have enough ways to solve it on the demand side. In June-July there were signs of a relatively moderate increase in real estate prices."

Stanley Fischer Oct. 3, 2010 Tomer Appelbaum
Tomer Appelbaum

Fischer refused to say what steps the central bank would take if it was forced to act to keep down housing prices, other than raising interest rates.

Fischer called the press conference in advance of his trip to the International Monetary Fund's annual meeting in Washington starting on Friday. Fischer said the the Israeli economy was in good shape, but the world economic situation was more complicated - and therefore we must avoid complacency. He cited strong economic figures for the second quarter of the year: 4.6% economic growth, a drop in unemployment to 6.2%, and inflation running at a 1.8% pace over the preceding 12 months.

Fischer also said the budget deficit for 2010 would be less than 4% compared to the projected 5.5%. Fischer added Israel has an impressive surplus in its balance of payments, almost $6.8 billion, which is about 3% of GDP.

In light of global economic figures, Israel's situation is even more impressive, he said. He also said Israel is in the final stages of emerging from the world crisis.

While there is still a possibility of another global economic crisis, he warned, the chances are not high. Fischer also used the press conference to tout cooperation with Finance Minister Yuval Steinitz.

"We are both working on the behalf of the same patient, the Israeli economy, and we both need to cooperate to reach the goal," he said.