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By Steven Scheer and Maayan Lubell
JERUSALEM, Oct 9 (Reuters) - Prime Minister Benjamin Netanyahu on Tuesday named U.S. finance professor Amir Yaron to head Israel’s central bank, citing the need for an expert on the global economy.
The Israeli-born Yaron, 54, a professor at the Wharton School of the University of Pennsylvania and who has lived in the United States for two decades, will replace Karnit Flug, whose term ends next month.
Flug, who opted not to seek a second five-year term, has had disagreements with Finance Minister Moshe Kahlon over the past three years, mainly over fiscal policy and Kahlon’s preference for lowering taxes. She said she spoke to Yaron and told him she would assist him in any way necessary.
Netanyahu, at a news conference with Kahlon, sidestepped questions over Yaron being an academic with no real practical experience, saying he had “intellectual excellence.”
“This is the one job where you need people who really understand the global economy, monetary policy and financial systems,” Netanyahu said, stressing the need for an independent central bank. “He understands the underlying currents that are affecting the world economy. We are not an island.”
It is unclear when Yaron would take the Bank of Israel’s reins since he needs clearance from a special vetting panel.
If approved, he would become governor at a pivotal time for Israel’s economy, which is growing at a solid annual pace of about 3.5 percent.
With inflation now inside the government’s target of 1 to 3 percent, policymakers had been expected to start raising interest rates sometime in the fourth quarter.
But on Monday, along with keeping the benchmark rate at 0.1 percent — where it has stood since early 2015 — the central bank’s economists pushed back its projection for a rate rise to 2019 due to a belief that inflation would ease temporarily. In all, the bank’s staff expects the rate to reach 0.5 percent by the end of next year.
Yaron was not present at the news conference but in a statement said he had had in-depth discussions with Netanyahu and Kahlon in recent weeks “on Israel’s economy and its achievements and on the ways to advance Israel’s economy and society and deal with global and local challenges.”
Leo Leiderman, one of Yaron’s former professors at Tel Aviv University, said there should be continuity in terms of policy.
“He (Yaron) very much favours an inflation targeting approach which is used by Israel and most leading central banks around the world,” said Leiderman, chief economic advisor at Bank Hapoalim. “I believe he will keep this framework alive and well.
“His view is that the main objective of the central bank is to achieve the inflation target and to contribute to economic activity and financial stability.”
Leader Capital Markets economist Jonathan Katz said Yaron appeared to be a hawk and should “support a hawkish monetary policy committee.”
Yaron’s research interests include asset pricing, macro-finance and applied time series economics and his teaching focuses on investment and asset pricing, international investments, and multinational firms, according to the university website.
He received a doctorate from the University of Chicago in 1994 and an undergraduate degree and Master’s at Tel Aviv University.
In a 2015 research paper, Yaron wrote that the net effects of investor uncertainty are greater than previously thought, and that they are not always bad. (Additional reporting by Ari Rabinovitch; Editing by Tova Cohen and Kevin Liffey)