On
Monday, the bank held its benchmark interest rate <ILINR=ECI> at
0.1% but said it would buy 15 billion shekels ($4 billion) of
higher-rated corporate bonds in the secondary market.
"It's not that the corporate bond market was not functioning or
because spreads have widened dramatically, but rather the
understanding that over the next 6-12 months, there's going to
be a need for issuance in that market," Abir told Reuters.
The central bank began purchases on March 15 of up to 50 billion
shekels of government bonds, which has helped reverse a spike in
government and corporate yields.
The index of bonds issued by Israel's 20 largest firms
<.TELBOND20> has gained 1.4% following the central bank's
announcement, following three weeks of declines.
Noting that more than 40% of corporate credit comes from the
bond market, Abir said that fear of being frozen out the market
could lead to cash hoarding and cost-cutting, including jobs.
"We want to prevent a situation where a company is having
question marks in its ability to fund themselves (and) lays off
another 1,000 workers."
Unemployment is already more than 20% and could worsen after
some COVID-19 restrictions were reimposed.
Abir said risks to the central bank's scenario of a record 6%
economic contraction in 2020 will be "to the downside" if the
infection rate stays high.
Analysts are split over whether the central bank will lower its
key rate to 0% or negative. The Bank of Israel has indicated it
is reluctant to do so.
"We still have more measures that we can do. QE can be
increased. We haven't run out of our policy options," Abir said.
(Reporting by Steven Scheer; Editing by Catherine Evans)
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