​The BoI will purchase corporate bonds

ISRAEL - In Brief 07 Jul 2020 by Jonathan Katz

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The MPC decided to maintain present policy rates on hold at 0.1%, but announced a plan to purchase 15bn ILS of Israeli corporate bonds rated A- or higher in the secondary market. In addition, the Bank of Israel will renew its three-year loans to the banks at 0.1%. The monetary announcement reflected a pessimist outlook, noting that 12% of the economy remains inactive, and that total activity is still 10% below that of the beginning of the year. Unemployment (including furloughs) is estimated at 17% in June. The BoI macro forecast reflected this pessimism. The GDP growth forecast was revised downwards to -6% this year (from -4.5% in the 25.5 forecast) and 7.5% in 2021 (from 6.8%). In 2020 private consumption is expected to decline by 6.5%, investments by 13.5% and exports by 13%. Unemployment is expected to reach 9% in Q420 and 6% in Q421.The BoI presented a more negative scenario taking into account a renewed lockdown in which growth would decline by 9% this year and unemployment would reach 11.5%. With some renewed restrictions on crowds and restaurants imposed yesterday (and more could follow) the more negative scenario appears quite possible. We note that the Bank of Israel has adopted expansionary monetary tools during this crisis following in the footsteps of the US Fed. Govenor Yaron is very much in tune to what the Fed is doing. The Fed announced direct corporate bond purchases three weeks ago. Therefore, the next possible tool could be official YCC, but the Fed is not quite there yet. Yaron did suggest that as long as there is no outbreak in inflation, government bond purchases will continue in order to maintain low long rates during the crisis. In our view, a ...