"If we again lose control in opening the economy after the lockdown, we will be in a completely different situation," Deputy Governor of the Bank of Israel Andrew Abir said today at the Tel Aviv Stock Exchange's "Market Maker" forum.
"In the past few days we have seen a change in sentiment," Abir said. "Market players are perhaps less optimistic about the shekel than they were. I suggest that no-one should think that the exchange rate can only go in one direction. It is always necessary to hedge risks. You must always think about what risks you are prepared to take."
At the beginning of the conversation Abir was asked for his response to the government's decision to impose a further lockdown. "It's impossible to ignore the circumstances that led the government to decide on another lockdown," Abir replied. "What has happened in the rate of infection in the past few weeks is very worrying. Fortunately they went in the direction of a smart lockdown and not a blind one, trying to leave as much as possible of the economy active. We estimate the cost to the economy of every week of lockdown at around NIS 5 billion, but as long as the lockdown is fairly short and afterwards the economy is opened up but people keep to the rules, then I think that the cost will be contained. But if we lose control again we will be in a completely different situation."
The interviewer, Yaniv Pagot, expressed the view that the NIS 50 billion quantitative easing program for buying Israeli government bonds announced by the Bank of Israel would end towards the end of the year, in the light of the amount of debt that the government plans to raise, in the hundreds of billions of shekels. Against this background, Pagot asked whether the Bank of Israel intended to take preventative measures and expand the quantitative easing program.
Abir responded that beyond preventing panic on the markets, buying government bonds gives the government "a environment conducive to raising money for its needs in financing its deficits." Abir pointed out that so far the Bank of Israel has bought government bonds to the tune of NIS 30 billion out of the planned amount, and that long-term yields had fallen to 0.75%. "We're talking about very low interest rates both for the government and as the basis for the entire credit sector in the economy. If we see that the situation makes further steps necessary, we can always expand our measures and add to them," Abir said.
Published by Globes, Israel business news - en.globes.co.il - on September 14, 2020
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