Klein warns: If prices destabilize, interest rates will go up

Bank of Israel Governor David Klein has warned he will raise interest rates if prices destabilize.

"One doesn't raise interest rates in opposition to an economic plan. One raises interest rates, if one does, in order to maintain price stability. If we see that price stability is hurt, then of course we'll have to raise interest rates again in order to maintain price stability," Klein said in an Army Radio interview.

Asked whether another sharp interest rate hike is in store, Klein said this depends on the bank's inflation expectations. "Today the hole in the budget is so big that emergency measures are really needed," he said. One cannot increase the tax burden, especially not tax on labor, because this leads to increased unemployment, Klein stated.

Klein said that the deficit shouldn't be widened because this will lead to higher interest rates. The big army operation was not the main cause for the deficit, he said. "The deficit is a process that has been going on for a year and a half, and it seems it will come to 6% this year,¿ Klein concluded.