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Fischer Raises Israeli Rates, Risking Recovery

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http://www.bloomberg.com/apps/news?pid=206...id=agTNjCAs3DLo

The Bank of Israel’s Stanley Fischer became the first central bank governor to raise interest rates since signs of easing in the global recession, risking a shekel appreciation that may hinder the country’s economic recovery.

Fischer yesterday unexpectedly increased the lending rate by a quarter of a percentage point to 0.75 percent. The shekel strengthened for a third day and was trading at 3.7917 as of 10:06 a.m. in Tel Aviv.

“Just a few weeks ago the bank was intervening heavily to prevent excessive shekel strength,†Win Thin, a senior currency strategist with Brown Brothers Harriman & Co. in New York, said in a telephone interview. “The two goals of higher interest rates and a weaker currency are a contradiction.â€

Fischer is struggling to unwind an expansionary monetary policy while containing a rally in the shekel in a country that depends on exports for half of its gross domestic product. He bought dollars yesterday just two weeks after ending daily purchases that had accumulated about $52 billion in reserves since he started buying in March 2008.

The bank purchased “at least tens of millions of dollars†yesterday, according to Arie Tal, chief analyst at Alumot-Sprint Investment House near Tel Aviv. “He knows he has to play both ways -- raise rates to curb inflation and support exporters by buying dollars.â€

Israel’s main exporters include Petah Tikva-based Teva Pharmaceutical Industries Ltd., the world’s biggest maker of generic medicines, and Haifa-based Elbit Systems Ltd., the country’s biggest non-government defense contractor.

Not Sustainable

Fischer has been backing away from economic stimulus measures since July 27, after the inflation rate slid into the 1 percent to 3 percent target range for only one month before rebounding back out.

He announced on Aug. 10 that he would end daily purchases of $100 million in foreign currency and would buy only in the event of “unusual movements†in the shekel. He said on July 27 that he would halt the purchase of bonds.

Lockstep?

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Is this is the start of the new trigger?

Once countries are forced to raise rates - they will become the focus for large scale movement of foreign funds - which will then force other countries to raise rates to keep capital.

It's got legs.

After this comes protectionism, definitely.

And, as particleman says -

Then war.

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Is this is the start of the new trigger?

Once countries are forced to raise rates - they will become the focus for large scale movement of foreign funds - which will then force other countries to raise rates to keep capital.

It's got legs.

Things could be about to get interesting. Perhaps Bernankes comments about the near future looks good was purely about 1Q!!!!!

Once the game of moving IR up everyone will have to follow to prevent capital flight.

Thank god the central bankers know what they are doing.

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After this comes protectionism, definitely.

And, as particleman says -

Then war.

:( We are sleepwalking into this. All to try to control some piffly little recession in 2000.

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Things could be about to get interesting. Perhaps Bernankes comments about the near future looks good was purely about 1Q!!!!!

Once the game of moving IR up everyone will have to follow to prevent capital flight.

Thank god the central bankers know what they are doing.

Capital flight is going to be massive.

So will business flight - AWAY from those countries that persist in creating an artificially high cost base and then stick the taxpayer (both personal and business) with the bill for it.

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Capital flight is going to be massive.

So will business flight - AWAY from those countries that persist in creating an artificially high cost base and then stick the taxpayer (both personal and business) with the bill for it.

this is true...how can a country compete when they need to pay £30K for people to even live in a place of their own.

premises and personell...the two biggest costs, and boy, are ours the biggest.

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Capital flight is going to be massive.

So will business flight - AWAY from those countries that persist in creating an artificially high cost base and then stick the taxpayer (both personal and business) with the bill for it.

And the response will be to wall people in with protectionist measures, capital controls and the like.

See also the other story I posted about china stopping exports of rare metals (not gold, the wacky end industrial stuff.)

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But at least we'll all get more interest on our savings. :unsure:

Of course.

If the debtors die, the system doesn't have to be fundamentally reformed and we can have another few decades of it.

"In the long run we are all dead." John Shithead Keynes.

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Things could be about to get interesting. Perhaps Bernankes comments about the near future looks good was purely about 1Q!!!!!

Once the game of moving IR up everyone will have to follow to prevent capital flight.

Thank god the central bankers know what they are doing.

I think he meant Tuesday. He just got re-nominated. Hurrah!

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this is true...how can a country compete when they need to pay £30K for people to even live in a place of their own.

premises and personell...the two biggest costs, and boy, are ours the biggest.

but we are worth it................

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I think he meant Tuesday. He just got re-nominated. Hurrah!

Does he get a new fleet of helicopters with his new term? The old ones have done some air time spreadin his snake oil onto the economy.

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