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Bank of Israel Will Buy Bonds for First Time Since Fischer’s Era

Ivan Levingston

(Bloomberg) --

Israel’s central bank will begin purchasing government bonds for the first time since 2009 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. The Bank of Israel said in a statement it will buy bonds “in the necessary quantities,” without specifying a target.

With interest rates already just above all-time lows, the Bank of Israel 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.

Under then-Governor Stanley Fischer, the central bank bought government bonds in the aftermath of the global financial crisis more than a decade ago with the aim of pushing down yields to make it easier for companies to raise funds.

Stocks rose in trading Sunday morning, with the Tel Aviv-35 index up 1% at 10:38 a.m. local time. Prices on Israel’s benchmark government bonds maturing in 2030 rose.

“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 secondary market.

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.

If the 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.

To contact the reporter on this story: Ivan Levingston in Tel Aviv at ilevingston@bloomberg.net

To contact the editors responsible for this story: Lin Noueihed at lnoueihed@bloomberg.net, Paul Abelsky, Michael Gunn

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