This afternoon (Tuesday), the Knesset was due to approve, on second and third reading, the amendment to the Short Term Loans Law. The amendment would empower the government to increase STL issuances over and above the statutory ceiling, so as to offset the money supply deriving from the purchase of State bonds by the Bank of Israel, in the frame of the provident funds safety net.
The amendment limits exceptional issuance to the amounts at which the Bank of Israel has purchased the debentures, commencing from July 22. The Finance Committee resolved, based on a proposal by MK Avraham Shohat (Labour), that the exceptional amount will not exceed NIS 15 billion, unless otherwise approved by the committee. Both the amendment and the authorisation for exceptionally high issuances, will be limited to the period August 1 to December 31, 1996.
The amendment expressly provides that the government will not be entitled to use moneys obtained in consideration of the sale of the STL bonds to the Bank of Israel, for any other purpose than repayment of the loan as provided by law, or for payment of interest thereon. Finance Minister Dan Meridor stressed that the exception has been assigned a definite purpose, which will preclude the government from using STLs as it pleases.
The lawful ceiling was hitherto NIS 15.5 billion, as provided by the previous amendment, adopted about eighteen months ago, when it was raised by 50%. Prior to the new amendment, the STL ceiling reached NIS 19 billion which, as reported to the Finance Committee, was wholly exhausted, giving rise to the need for the exception.
Today (Tuesday), for the sixth consecutive day, the daily monetary tender for the banks did not take place. Disruptions in daily tenders are expected to continue for the next several days, due to the impossibility of soaking up the money surpluses from the market.
The Bank of Israel is calling upon the Treasury to raise the STLs ceiling, so as to enable daily monetary tenders to the banks to be implemented. The Treasury however, opposes the idea, stressing that the very heavy injection into the money markets is connected with the high shekel interest rate, which results in major capital import and the gigantic provident fund redemptions.