Bank of Israel to loan banks up to $15b. as shekel slides against dollar

Bank of Israel to loan banks up to $15b. as shekel slides against dollar

Move meant to boost liquidity, support Israeli currency as pandemic pummels global markets; publicly traded firms call for further intervention amid spiraling economic crisis

Workers wearing protective clothes disinfect a public playground in Bat Yam as part of measures to prevent the spread of the coronavirus, March 18, 2020. (Tomer Neuberg/Flash90)
Workers wearing protective clothes disinfect a public playground in Bat Yam as part of measures to prevent the spread of the coronavirus, March 18, 2020. (Tomer Neuberg/Flash90)

The Bank of Israel on Wednesday said it would allocate up to $15 billion for swap transactions between currencies for domestic banks, part of a move aimed at shoring up the Israeli economy amid the coronavirus pandemic.

The move is meant to boost liquidity in the foreign exchange market and support the shekel as it slides in value against the dollar amid global economic turmoil.

The funds will come from the Bank of Israel’s foreign exchange reserves of around $130 billion which the bank has accumulated in recent years.

The coronavirus pandemic has bludgeoned global markets as spending is curtailed by government restrictions, closed businesses, limited movement, consumer fears and plummeting equities.

On Monday the bank carried out an unspecified amount of dollar to shekel swaps with domestic banks to supply dollar liquidity to Israel’s banking sector.

“The Bank of Israel will continue to implement this instrument as long as dollar liquidity pressures continue to be very high,” the bank said in a statement.

Israelis shop for groceries in Jerusalem amid coronavirus fears, March 18, 2020. (Yossi Zamir/Flash90)

The banking sector has seen a shortfall of dollars in recent days. The shekel has dropped in value against the dollar by about 10 percent this month.

The shortage of dollars is partly due to international firms withdrawing funds to other countries.

The bank said it had other tools at its disposal to boost price stability, the government’s economic policy, and the stability of the financial system.

Also on Wednesday, the Israeli Association of Publicly Traded Companies, a non-profit that represents hundreds of public firms in Israel, called on the Bank of Israel to take more action to steady the market.

“The Bank of Israel must act immediately and start to buy corporate bonds and stocks,” said Ilan Flato, head of the organization. “We’re in the midst of one of the most severe crises in economic history, and the Israeli government is not leading in a meaningful way to stabilize the capital market or respond to the liquidity problem.”

Flato warned that tens of public companies in Israel could collapse and tens of thousands of workers would be fired.

“We’re likely only in the first phase of the crisis, which, unlike the 2008 crisis, is a real one and not only financial,” Flato said.

The Tel Aviv Stock Exchange has plummeted in recent weeks alongside global markets. The exchange’s TA-35 index has dropped over 30% in the past month, including a 6.7% fall on Wednesday.

In the US, the S&P 500 index has fallen over 29% in the past month.

A stock market ticker screen in the lobby of the Tel Aviv Stock Exchange, in the center of Tel Aviv, March 15, 2020. (Flash90)

The Bank of Israel has refrained from cutting interest rates, despite the US Federal Reserve slashing rates to near zero in response to the crisis. The Bank of Israel’s rate stands at 0.25%.

The Bank of Israel and retail banks had  also announced measures on Sunday to mitigate damage to the economy caused by the coronavirus pandemic.

The bank will be buying government bonds and offering repo transactions to Israeli financial institutions, using government bonds as collateral. The bank did not specify the size of the planned transactions, only saying it would buy bonds “in the necessary quantities.”

Retail banks will adjust policy to support the business sector and general public following a request from the Bank of Israel. The banks’ newly announced regulatory leniencies are aimed in particular at small and mid-sized businesses, which rely heavily on bank credit.

The banks will offer a delay in mortgage payments for a few months, loans to small and mid-sized businesses that are seeing liquidity problems, expanded digital services for remote transactions, and courier services for customers in quarantine.

Israel’s Employment Service has seen a surge in unemployment applications in recent weeks, with some 180,000 Israelis filing for unemployment this month, 7.5 times the number that registered in the month of February.

The National Insurance Institute expects to see between 500,000 and 1.2 million Israelis unemployed due to the crisis, National Insurance Director Meir Shpigler said Wednesday.

The estimates mean an unemployment rate of non-self employed Israelis of between 13% and 32%.

Israelis wait in line outside a bank near Hatikva Market in Tel Aviv on March 15, 2020. (Tomer Neuberg/Flash90)

The Finance Ministry estimated Monday that the total damage to Israel’s economy caused by the pandemic will amount to NIS 45 billion ($12 billion) and wipe out any projected growth for the year.

The estimate came after Prime Minister Benjamin Netanyahu announced new restrictions to stem the virus outbreak on Monday night, and before the Health Ministry announced new more drastic measures on Tuesday.

The government on Monday ordered all businesses with more than 10 people to curb in-office staff by 70% and put the public sector on emergency footing, adding to measures that had already largely curtailed much of Israel’s economy.

Major employers released most of their staffs this week, including El Al, which put 5,500 workers — over 80% of its staff — on unpaid leave, and Castro, Israel’s largest closing chain, which put 6,000 on unpaid leave.

The widened restrictions came after the Health Ministry voiced support for a total lockdown of the country. Treasury officials, by contrast, have been strongly opposed to a full shutdown.

The Health Ministry introduced sweeping new restrictions to curb the spread of the coronavirus on Tuesday, instructing Israelis not to leave their homes unless absolutely necessary, but stopping short of imposing a mandatory lockdown. The Transportation Ministry said it was reducing public transportation at night and on weekends.

Israel has banned gatherings of over 10 people, closed schools, forced all Israelis entering the country into a 14-day quarantine, and ordered the closure of all malls, restaurants and cafes (with takeout permitted) to contain the outbreak.

As of Wednesday afternoon there were 433 confirmed cases of COVID-19, the disease caused by the new coronavirus. Tens of thousands more are in self-quarantine for 14 days on suspicion they may have been exposed to the virus. Six Israelis are seriously ill; all are reportedly elderly and had previous medical conditions.

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