stanley fischer : brief review of economic and financial developments in israel in 2006 address by professor stanley fischer, governor of the bank of israel, at the press conference on the publication of the bank of israel 2006 annual report, jerusalem, 11 april 2007. * * * i would like to start by congratulating the team that prepared the report, headed by karnit flug, director of the research department, and michel strawczynski, deputy director of the research department. the team consisted of staff from the research, monetary, and foreign exchange activity departments and the financial stability area. this morning i presented the report to the acting president of israel and speaker of the knesset, ms dahlia itzik ; the prime minister, mr ehud olmert ; and the minister of finance, mr. abraham hirchson. in economic terms 2006 was one of israel's most successful years. this was reflected in the high rate of growth, the decline in unemployment, the improvement in employment, the impressive surplus in the current account, the amount of foreign investment in israel, and price and financial stability. all this took place against the background of rapid global economic growth, but also in a year in which israel was engaged in a war. despite the successes, there are three areas in which, although some progress was made, much work still needs to be done : the relatively high unemployment rate, the large share of public debt in gdp, and the high incidence of poverty. helped by the high rate of growth, however, especially in the last three years, some improvement was evident in all these areas. this drives home the importance of focusing on the main objective of macroeconomic policy – the maintenance of a high rate of growth and converting it into a long - term one. the continued success of israel's economy depends this year too on three main factors : developments in the global economy, over which we have no influence ; ( 2 ) the geopolitical situation, on which we have some effect ; and ( 3 ) the continuation of the government's economic strategy as followed in the last few years, over which we in israel do have control : • current fiscal strategy should persist, mainly the preservation of a low budget deficit, leading to further lowering of the debt / gdp ratio, which despite its reduction is still too high. it is important to avail ourselves of the good years we are currently enjoying to persist in reducing it. reducing the share of debt in gdp would make the economy

snb study revealed that the doubling of snb liquidity in august - september 2011 had a significant impact on the yield on 10 - year confederation bonds. 8 with this in mind, i would now like to discuss the specifics of the swiss case in more detail. the swiss case historically, switzerland ’ s long - term interest rates have usually been lower than those of most other mature economies. recently the 10 - year swiss government bond yields even fell below those of their japanese equivalent and reached an all - time low ( slide 9 ). current low interest rates in switzerland can largely be explained by negative developments in the global economy, which have progressively increased the demand for “ risk - free ” investments, while decreasing their supply. on the demand side, increased financial sector risk and an uncertain economic outlook have led many market participants to seek the joyce, lasaosa, stevens and tong ( 2010 ). for example, krogstrup, reynard and sutter ( 2012, forthcoming ). gagnon, raskin, remache and sack ( 2010 ). krogstrup ( 2012 ). bis central bankers ’ speeches protection of safe havens. on the supply side, the european sovereign debt crisis has also had a simultaneous, and not unrelated, impact. investors have increasingly questioned the relative security of assets that were previously considered safe. this is reflected in the main credit rating agencies ’ recent downgradings of several sovereign bonds that were formerly triple a - rated. this increased demand for, and decreased supply of, risk - free assets has directly affected switzerland. the reasons for this are well known. the country has managed to maintain a longstanding reputation for stability. in relative terms, the swiss economy has also withstood the 2007 financial crisis rather well ( slide 10 ), its economic figures are healthy and, at less than 40 % ( slide 11 ), its gdp - to - debt ratio is relatively low ( slide 12 ). all of this has prompted a surge in the demand for swiss franc - denominated assets and put downward pressure on swiss interest rates. at the policy level, the snb used a range of instruments to increase the supply of liquidity on the swiss money market and exert vigorous downward pressure on interest rates, particularly after the swiss franc reached an all - time high in early august. in line with the goals stated in the snb ’ s announcement of 3 august, the three - month libor fell from 17. 5