The Deputy Governor sees more aggressive monetary policy only if the crisis worsens

ISRAEL - In Brief 22 Jun 2020 by Jonathan Katz

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Deputy Governor Abir last week said that the Bank’s high foreign exchange reserves are what enable aggressive monetary actions in the bond and FX market, and that they are a strategic asset for the Israeli economy. In addition, if the crisis worsens, the Bank has the ability to increase the existing programs (mostly the bond purchases) or to implement new ones such as the purchase of corporate bonds, should it be necessary. Abir also noted that the liquidity that was supplied to the foreign exchange market (dollar/shekel swap market) was temporary. It appears that the Bank of Israel is satisfied with their current policy, and will consider a more expansionary policy only if the situation deteriorates. We note that the MPC has the final say, although Abir's opinion most likely reflects the Governor's as well. Following May's low CPI print, the question of zero rates will come up at the next MPC meeting (one member was in favor in the last decision), but Governor Yaron has chalked this up to measurement issues and negative rates appear rather unpopular. We still see the possibility of a more aggressive bond purchasing program, although Abir appears to pin this to "a worsening crisis".