Bank of Israel to buy NIS 50 billion in bonds to steady sinking economy
Massive purchase the latest in a series of measures by bank to counter soaring unemployment, plummeting equities, shuttered businesses, amid coronavirus pandemic
Luke Tress is a video journalist and tech reporter for the Times of Israel
The Bank of Israel said Monday that it would buy NIS 50 billion ($13.4 billion) in government bonds on the open market to ease credit conditions and bolster the economy as the coronavirus crisis bludgeons the national economy and global markets.
The move is the latest in a series of measures by the bank to stabilize the economy as it deteriorates amid skyrocketing unemployment, government restrictions, shuttered businesses, plunging equities and consumer fears.
The bank initially offered a relatively optimistic view of the crisis, predicting a loss of less than 1 percent to Israel’s GDP, but the government outlook, including that of the Finance Ministry, has become increasingly dire.
“In recent weeks, the economic conditions in the Israeli economy have worsened significantly,” the bank said in a Monday statement. “Economic activity has been seriously disrupted, and volatility in the financial markets has increased.”
The massive bond purchases will allow the bank to influence bond yields, lower the cost of longer-term credit for companies and households, moderate bond volatility and stabilize markets, the bank said.
The bank will continue to swap dollars and shekels to keep the currency stable.
The Bank of Israel has been less aggressive in its response to the pandemic than the US Federal Reserve, which slashed interest rates to near zero in a futile attempt to buoy markets.
In its Monday statement, the Bank of Israel appeared to shoot down hopes it would similarly cut interest rates, saying, “The Bank of Israel interest rate has for a long time been at low levels, which makes financial conditions easier for the business sector and households.” Its interest rate currently stands at 0.25%.
The Bank of Israel took action in the bond market on March 15 for the first time since the 2009 financial meltdown.
Last week, the bank said it would allocate up to $15 billion for swap transactions between currencies for domestic banks as the shekel slid in value against the dollar. The move boosted the shekel’s value, although it has since declined, dropping several percentage points in Monday trading. One shekel is currently worth about $3.71.
Israeli equities continued their descent on Monday, with the TA-35 index dropping nearly 1% after a modest jump at the end of last week. The index has fallen over 30% in the past month.
US markets also fell further on Monday, with the S&P 500 down over 4% by mid-afternoon. The index has seen a historic drop of nearly 34% in the past month.
Meanwhile, Israel’s unemployment rate increased to 17.6% Monday, as 62,000 people registered with the unemployment service, bringing the total number of newly unemployed in March to 573,000.
Some 90% of people registering with the service have been placed on unpaid leave and the unemployment service expects 10% – 20% of those registered to lose their jobs on a permanent basis when the coronavirus crisis comes to an end.
The crisis has hit the tourism, restaurant and aviation sectors particularly hard, with layoff and unpaid leave seen across the board. Around 49% of those fired or sent on unpaid leave are below the age of 35, and some 62% of the newly unemployed are women.
Officials were reportedly preparing to announced on Monday or Tuesday even more drastic measures to stem the spread of the virus, which will further batter the economy. The government will reportedly shut down public transportation, order all shops but supermarkets and pharmacies closed, and limit how far people not going to work can walk outside their homes.
In government meetings on the shutdown, the Finance Ministry warned that if a total lockdown is applied the economy may not be able to rehabilitate afterwards, according to Channel 12 news. The Finance Ministry estimated last week that the virus will cause damage to the economy of some NIS 45 billion ($12 billion) and wipe out any projected growth.
As of Monday, there were 1,442 confirmed cases in Israel of COVID-19, the disease caused by the virus, with one fatality. Around the world, there have been over 16,000 deaths and more than 367,000 cases.
Over the past few weeks, the government has ordered increasingly severe restrictions on public life, with schools, universities, and leisure centers shuttered and Israelis ordered to remain inside as much as possible.
Gatherings have been limited to just 10 people, and the public has been told to maintain a distance of two-meters from one another when outside.
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