Stanley Fischer Must Stay on as Governor of the Bank of Israel

Nov.24.09 | About: iShares MSCI (EIS)

Governor of the Bank of Israel Stanley Fischer announced yesterday that he would be raising interest rates by 0.25%. He is full of surprises. Just one week after Fischer announced that there was no real estate bubble in Israel despite the rising prices of real estate here, Fischer surprises the market with an anti-inflationary move. In fact, just yesterday, the Mintz firm in Israel suggested that interest rates would not rise much in 2010 (Link in Hebrew) and one day later, Fischer surprised with a 0.25% upward adjustment.

As I have written before, Fischer keeps 'em guessing in a brilliant fashion. He jumps in and buys dollars, easing the Shekel into higher value so that the exporters can get used to it. He raises interest rates when few are expecting it, attempting to keep inflation in check while still letting the economy expand with easier credit.
Some would argue that the job of the central banker is to provide predictability and stability. However, I disagree. In these crazy times, caginess and targeted action is critical to keeping speculators on the sideline and keeping the economy in check. A reporter told me this evening that just after the Bank of Israel raised rates, the press team at the Bank of Israel was on the phone telling every reporter who would listen that this was a one time event. Brilliant! Fischer is using every tool at his disposal from interest rates, to buying foreign currency to effective PR. I bet Paul Krugman would love to have Stanley Fischer in place of Obama's economic team right now.
Which brings me to the next point: Fischer's term is up in May. He is using all of his weight to turn the Bank of Israel into the super regulator of the Israeli financial system. The Finance Ministry is pushing back. Fischer seems to have conditioned his return for a second term on this structural reform. Prime Minister Netanyahu and Finance Minister Steinitz would be wise to put the Treasury Bureaucrats in check and ensure that Fischer returns for a second term to help keep the Israeli economy out of the Global Great Recession. We need Governor Fischer back at the helm for another 5 years.