By Steven Scheer
JERUSALEM, Feb 16 (Reuters) - The Bank of Israel said on Monday it will start buying government bonds in the secondary market beginning on Tuesday in a move designed to increase the liquidity in the financial system.
'The bank will transact open market operations in the secondary market with government debt of different types and maturities,' it said in a statement.
'The aim of this step is to increase the liquidity provided to financial institutions, businesses and households and enhance the effectiveness of monetary policy.'
The Bank of Israel said it expected this measure will 'extend the effectiveness of monetary policy onto longer interest rate maturities'.
Bank of Israel Governor Stanley Fischer has said the central bank was prepared to buy assets in the same way as the United States and other countries to add liquidity to the financial system because short-term interest rates have fallen so low. Earlier on Monday, he said they will include government bonds .
With Israel's economy activity and inflation levels falling rapidly, Fischer has lowered Israel's key lending rate by 3.25 percentage points since October 7 to a record low of 1 percent. Another rate cut is expected next Monday.
On the heels of a global downturn that has hit exports hard, the economy is forecast to contract 0.2 percent in 2009.
The Bank of Israel said it will publish on its website on a monthly basis the total amount transacted through open market operations in the previous month.
'The Bank of Israel will monitor the use of this instrument and if necessary make adjustments if and when they are needed,' it said.
The shekel weakened about 0.8 percent against the dollar after the announcement, moving to a 17-month low of 4.11 from it's official rate of 4.0740. Keywords: ISRAEL CENTRALBANK/BONDS
([email protected]; +972 2 632 2210; Reuters Messaging: [email protected];editing by Ian Jones)
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