HERZILIYA, Israel Jan 31 Bank of Israel
Governor Stanley Fischer said on Sunday that rising housing
prices did not constitute a bubble.
Housing prices rose 5.6 percent in 2009, contributing to an
inflation rate of 3.9 percent last year.
"We have a problem of real estate market and people call it
a bubble. But this is not a bubble," Fischer said at the annual
Fueled by strong growth in the second half of the year,
Israel's economy grew 0.5 percent in 2009 and is forecast to
grow 3.5 percent in 2010.
"Israel's economy is now in recovery but this recovery is
very fragile," Fischer said. "That is why Israel has to be very
careful getting out of policies executed during the crisis."
The Bank of Israel last August was the first major central
bank to raise short-term interest rates. It has so far raised
its key lending rate to 1.25 percent from 0.5 percent, with the
last move a quarter-point increase on Dec. 28.
The central bank last week opted to leave its key rate
"We should not unwind the monetary stimulus so quickly,"
He noted that the central bank was trying to balance two
factors -- supporting the economy while trying to keep
inflation to within an official annual target of 1 pct to 3
Inflation is expected to ease to 2.3 to 2.7 percent in
Fischer also said that Israel has the potential to grow
above the 5 percent level the country grew between 2003 and
2008 but peace with the Palestinians and other regional
neighbors were needed.
"If there is peace, we would get closer to growth of 6 and
7 percent," he said, noting that peace would likely lead to
much higher foreign investment.
(Reporting by Steven Scheer, editing by Martin Golan)