Home >News >World >Bank of Israel adds $10 billion to crisis bond-buying plan

The Bank of Israel will buy as much as 35 billion shekels ($10.3 billion) more in government bonds to boost the economy that is now emerging from a second national lockdown.

The new amount is on top of the 50 billion shekels of sovereign debt the central bank committed to purchase at the start of the pandemic, and is intended to drive down costs for government borrowing and inject liquidity in the local market.

The central bank kept its base lending rate at the record low of 0.1% on Thursday, predicted by most economists surveyed by Bloomberg.

The monetary policy committee decided to expand the scope of government bond purchases “in order to ensure that the economy’s credit needs continue to receive a response via a convenient interest rate environment," Governor Amir Yaron said.

The Bank of Israel is trying to shore up the battered economy, with tumbling consumer confidence and unemployment rising to almost 20% since Israel hunkered down last month. The government started loosening restrictions this week as new coronavirus cases drop, but the pace of the phased reopening remains uncertain. The central bank now estimates the economy will contract between 5% and 6.5% this year.

The added bond purchases is also coming to the aid of the government, which needs to find ways to plug the growing budgetary hole. The trailing 12-month deficit has more than doubled in 2020 to 9.1% of gross domestic product as a result of expanded fiscal stimulus.

Conducive environment

“Getting activity and inflation back on track currently means providing the government with an environment that is conducive to raising money for its efforts to prop up the economy," Citigroup Inc. analyst Michel Nies wrote in a note before the decision. “Indeed, the higher debt levels mean that the impact of interest rate changes is considerably stronger than before."

The Bank of Israel has taken several steps since the start of the crisis to mitigate the damage, such as buying corporate bonds to lower borrowing costs for businesses, easing requirements for mortgage repayments and reducing banks’ capital buffers to keep credit flowing. The central bank has so far bought at least 33.6 billion shekels of state debt.

The Bank of Israel also said on Thursday that it will extend 10 billion shekels of 4-year loans to local banks -- at a fixed -0.1% rate -- to help small businesses survive. The index of Israel’s biggest banking stocks jumped 2.2% as of 4:57 p.m. in Tel Aviv, the biggest gain in more than in two weeks.

“It’s clear that a deeper and longer recession implies that for a longer period of time the bank will be following the very expansionary policy with all the tools that it has," former central bank chief Karnit Flug said in an interview before the decision.

This story has been published from a wire agency feed without modifications to the text.

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