FINANCE MINISTRY AND BANK OF ISRAEL AGREE ON STABILIZATION MEASURES
(Communicated by Finance Ministry and Bank of Israel)
July 16, 1996
The Finance Ministry and the Bank of Israel have decided on principles of
action intended to increase the stability of the capital market.
A mechanism has been agreed upon for moderating the unusual fluctuations
in the prices of government bonds. Within this framework, the Bank of
Israel will buy government bonds on the market. The object of this
intervention is to moderate sharp changes in the yields on bonds, but not
to determine a specific yield.
The injection deriving from this purchase will be offset by the Bank of
Israel, in accordance with monetary policy needs, primarily by sales of
Treasury bills (Makam). For this purpose, the government will propose
amending the Treasury Bill Law, so as to raise the permitted upper limit
for issues as required, while leaving in place the mechanism for automatic
increase currently in the law. Treasury bills from this supplement will be
sold solely for the purpose of offsetting this injection.
The Minister of Finance and the Governor of the Bank of Israel stressed
the importance of a stable capital market as being of crucial importance
for raising capital by the business sector. The significance of making
certain changes in the structure of the capital market, in order to ensure
its long-term stability and growth, was also emphasized. Consequently, in
the near future, joint teams from both the Ministry of Finance and the
Bank of Israel will discuss the reforms required in this market.
The Minister of Finance again stressed the government's firm resolve to
reduce the budget deficit in the long-term, setting a total deficit not
greater than 2.8% of GDP, which requires that the budget be slashed by NIS
4.9 billion in fiscal year 1997. The Minister of Finance will closely
monitor the implementation of the 1996 budget, and prevent as far as
possible any departure from the target deficit set for this year,
taking whatever steps are necessary for this.