Miister of Finance Dan Meridor brought a bill for the amendment of the STL law to the Knesset floor today. The bill is intended to enable Bank of Israel to absorb the injections stemming from the acquisition of government bonds through operation of the "safety net" for the provident funds. The amendment determines that the minister of finance is authorized to issue an injunction raising the STL ceiling from time to time by an amount equivalent to the amount of bonds Bank of Israel will purchase within the framework of the safety net.
Following the amendment, Bank of Israel intends to hold tenders in August as well for the acquisition of government bonds at an even greater sum than that purchased in July (NIS 500 million).
The amendment is in keeping with an agreement reached in the middle of July between the Minister of Finance and Governor of Bank of Israel Prof. Ya’akov Frenkel, on the operation of a safety net to acquire government bonds, in order to insure the provident funds the necessary liquidity in light of the recent withdrawals from the funds by the public. According to estimates, withdrawals in August will reach a net of NIS 2.5 billion and an additional NIS 3 billion in September.
Sources in the Ministry of Finance noted that the recommended amendment will enable the minister of finance to increase the STL balance by the volume of government bonds Bank of Israel will purchase within the framework of the safety net. There is currently no consensus on raising the STL ceiling for the purposes of managing monetary policy. Bank of Israel is demanding an additional NIS 5 billion raise in the ceiling, in order to compensate for monetary expansion and prevent a sharp increase in the means of payment due to government injections. The STL balance is currently at NIS 19 billion. Bank of Israel has used NIS 18 billion of those to date.
Meridor also announced today a decision to issue one-year bonds beginning this week that will not be linked to the CPI. Officials at Bank of Israel stated that this is not a positive development for the capital market, and the new bonds will compete with the STL’s.