By Moti Bassok and Yuval Maoz
Tags: israel news, bank of israel
The Bank of Israel yesterday announced a series of measures aimed at stimulating the local credit market, which is a euphemism for inducing the banks to lend more freely despite the uncertainty of the times. The moves are expected to increase liquidity and lower the cost of credit to banks, trickling down to businesses and households.
From January 2009 the Bank of Israel will reduce its absorption of surplus liquidity that it carries out through the issue of short-term bills (makam) - currently at a rate of some NIS 8 billion monthly. The move is to increase liquidity in the economy, and to alter the composition of liquidity within the banks. By reducing its issue of short-term bills, the central bank hopes to encourage diversion of short-term savings to other channels.
The central bank will also offer longer term loans and deposits, in addition to the one-day and one-week monetary loans and deposits currently offered through auctions to the banking system.
The interest spread between the credit window and the deposit window for commercial banks is to be reduced from +/- 1% around the Bank of Israel interest rate to +/- 0.5%.
Repo auctions for the retail banks and institutions will also be offered for longer than the current period of one week.
The central bank said that it plans to monitor the effects of the program, and will consider additional moves as needed.
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