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The Bank of Israel will begin purchasing government bonds for the first time in over a decade in a bid to smooth volatility and boost liquidity, the latest emergency step in the face of the coronavirus outbreak.
It will also offer funding to financial institutions via repurchase transactions, officials announced Sunday morning. With interest rates already just above all-time lows, the central bank is unleashing stimulus after the government announced a partial shutdown that includes all non-essential businesses. Israel has 200 positive cases of the coronavirus and no deaths.
“It’s the least that they can do when the economy is really hurting and will hurt more,” said Jonathan Katz, economist at Leader Capital Markets Ltd. “This is a smarter move than actually reducing policy rates.”
The decision follows emergency measures at major central banks around the world to ease monetary policy as the virus outbreak hammers markets and the global economy.
Yields spiked in Israel last week and local media reported on investor redemptions from funds. In the announcement, the central bank said it could carry out open market operations and buy sovereign debt on the open and secondary market, but didn’t specify the amount of money it will put into the transactions.
Also Sunday morning, the Bank of Israel announced some regulatory relief for borrowers. Banks will relax the terms on consumer financial services, including mortgage repayments and small business loans.
It’s part of a series of moves the government is taking to boost the economy: Last week Prime Minister Benjamin Netanyahu announced a 10 billion shekel ($2.7 billion) aid package, with most of the money in the form of guaranteed loans for businesses hit by the coronavirus outbreak.
If the coronavirus outbreak continues for several more months, it could damage Israel’s economic growth this year by 1 to 2 percentage points, according to the Finance Ministry’s chief economist, Shira Greenberg. It had forecast that gross domestic product will expand 3% in 2020.
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