With the coronavirus crisis and the slowdown in the economy worsening, the Bank of Israel announced today a plan for quantitative easing. The Bank of Israel, headed by Governor Prof. Amir Yaron, said that it planned to purchase NIS 50 billion in government bonds in order to ease credit conditions in the economy and support economic activity.
The Bank of Israel stated, "In recent weeks, the economic conditions in the Israeli economy have worsened significantly, in view of the spread of the coronavirus and the measures taken to prevent it. Economic activity has been seriously disrupted, and volatility in the financial markets has increased. In view of this, the Monetary Committee has decided to launch a government bond purchasing program in the secondary market totaling NIS 50 billion, with the aim of easing credit conditions in the economy and supporting economic activity and financial stability.
The Bank of Israel adds that its interest rate has been low for a long time, which eases the financing needs of the business sector and households. "The bond purchases will enable the Bank of Israel to influence bond yields in the market along the entire unindexed and indexed curves, and to lower the costs of longer-term credit for firms and households, as a complementary tool to the short-term interest rate policy. The additional monetary support is particularly important at a time when many businesses and households are encountering liquidity difficulties due to the serious crisis that is negatively impacting their income," the Bank of Israel explained.
The trend in the government bond market took a sharp turn following the Bank of Israel's announcement. 30-year shekel bonds were up 2%, after being down 1.5% in earlier trading, and yields on them fell to 2.25%.
Earlier today, the US Federal Reserve announced a substantial expansion of its loan programs in order to remove the bottlenecks in the credit markets that emerged last week. It also expanded its credit line to include corporate bonds and several municipal bonds. The Federal Reserve further announced that it would soon unveil "a loan plan for Main Street" that would support loans to eligible small and medium-sized businesses.
The Federal Reserve Open Market Committee said that the purchase of US Treasure bonds and mortgage-backed bonds that it approved last week would be in effect unlimited. The Federal Reserve will buy $375 billion in Treasury bonds and $250 billion in mortgage-backed bonds this week.
The committee said that it would start buying bonds on commercial mortgages issued by concerns under government sponsorship, which are primarily mortgages for buying apartment buildings.
Published by Globes, Israel business news - en.globes.co.il - on March 23, 2020
© Copyright of Globes Publisher Itonut (1983) Ltd. 2020