Remarks by the Governor of the Bank of Israel at the Bank’s Press Conference on March 24, 2020
The global economy, including the Israeli economy, is dealing with an economic crisis that is larger and different from those the world has seen in recent decades.
In many countries, including Israel, the economy is shut down, other than critical industries and services, and a large percentage of workers are not going out to work.
As this is a global crisis, I am in ongoing and consistent contact with governors of the leading central banks worldwide and with international financial institutions. We are collaborating and advising on the steps being taken and those that need to still be taken.
It is important to me to emphasize—this is a crisis whose source is a factor that is external to the economy, and the date that it will end depends first and foremost on the world’s ability to overcome the virus. Nonetheless, proper economic policy, which is not shackled by the conventions that were proper for crises that were of totally different magnitudes and type, is what will dictate the pace of exiting the crisis and is what will determine the depth of its negative impact.
As such, our overarching goal is to support the economy and society, so that they will be able to get through the current period and arrive prepared at the day after the crisis.
At the end of the day, without health there is no economy, but without an economy there will also not be health. This is the key principle we will all have to remember over the course of dealing with this crisis.
The crisis hit us when Israel’s economy was in a good state, and still its strength and extent of the require action at unprecedented scale.
We, at the Bank of Israel, are focusing on maintaining the stability and orderly functioning of the financial system, and by the power of our authority we provide economic advice to the government.
With the outbreak of the crisis, the financial system encountered liquidity problems, and we launched 3 plans to assist in that area:
- First, we injected liquidity into the government bond market.
- Second, we supported the foreign exchange market through swap transactions.
- In this regard I will emphasize that there was not a need to sell foreign exchange on the market, but the instrument we used relied on the high level of the foreign exchange reserves held by the Bank of Israel—as we have always explained—for a time of crisis.
- Third, yesterday we announced a plan to purchase government bonds at an unprecedented scope of NIS 50 billion in order to reduce the cost of credit for businesses and households.
We are monitoring on a minute by minute basis the developments on exchanges around the world and in Israel.
Therefore, so that no one has any doubt: in any case of deterioration or signs of market failure in the financial markets, the Bank of Israel has all the tools to return liquidity to the markets.
The Deputy Governor will expand immediately on our activity in this area.
As the regulator of the banking system, we are working consistently vis-à-vis the banking system so that it assists businesses and households in this period. We entered this period with a banking system that is strong, with a high-quality and diverse credit portfolio and proven resilience in stress situations. This is the result of tight and appropriate supervision and proper management of the heads of the banking system.
We have guided the banks to extend credit to businesses and households and have published regulatory easings that will support that.
I am happy that the banking system joined in the effort admirably and is assisting businesses and households to deal with the crisis. We have taken quite a few steps to assist the public, and in particular weaker population groups, in their conduct vis-à-vis the banking system at this time.
The Supervisor of Banks will immediately expand on this issue,
The orderly functioning of the entire payment system—digital means, checks, and cash—is a necessary precondition for the orderly economic functioning of the economy in routine times, and especially in a period like this.
These systems are functioning smoothly and without malfunctions due to acute preparation during routine times, which is now serving us in an emergency. The Bank’s Director General will detail the range of steps we have taken in order to ensure the Bank of Israel’s ability to fulfill its critical functions.
The ball is now in the court of the Knesset and the government.
I want to emphasize: I am in close contact and in full collaboration, around the clock, with the Prime Minister and the Minister of Finance, to assist in formulating the fiscal plan that the Prime Minister and the Minister of Finance will soon present.
Whoever knows me knows that as early as in my speech upon entering the position I reiterated the necessity of reducing the budget deficit and of stabilizing the debt to GDP ratio in regular times. However, these are not regular times—so today we need to let go of the conventional wisdom that was correct for other times.
This is the time to support businesses and citizens, so that the crisis does not deepen and in order to enable businesses and households to exit it rapidly when the health related restrictions are lifted.
We have to help those who have been adversely impacted by their company or business revenues having been negatively affected while having to continue meeting the expenses they have incurred.
In addition, we have to help those who have been laid off or who were placed on unpaid leave and whose income was dramatically negatively impacted.
This is what governments around the world are doing, and at astronomical scopes.
I commend the economic steps taken by the Ministry of Finance to date. However, in order to deal with the crisis we will have to allocate resources at larger scopes, even at the cost of increasing the deficit.
Therefore, a significant budgetary safety net of about NIS 15 billion should be established, about 1 percent of GDP, at least initially—an amount designated for the government’s determined dealing with the coronavirus crisis and support for the survival of small and medium sized businesses.
As Governor of the Bank of Israel, I give my full backing to the government and Knesset taking such steps.
I call from here on the Knesset members and decision makers to rise above the differences of opinion and to rapidly approve the plans that will be presented by the Prime Minister, the Minister of Finance and his senior staff, and to grant them the required flexibility of action as soon as possible.
We must act responsibly, determinedly, and rapidly, while displaying leadership—the economy requires certainty.
The Director of the Research Department will describe here in detail the Bank of Israel’s current economic status report and the steps we recommend taking.
In conclusion, the Bank of Israel, under my leadership, together with its dedicated workers, continues to follow the developments. It has the tools required for dealing with the crisis and we will not hesitate to operate every tool within the framework of our authority, as needed, to continue to support economic activity and the financial robustness, so that the economy will be able to continue to produce and develop under the limitations placed on it.
We are in the eye of the storm, one which we hope will lose some power slightly after Passover. I am aware of the difficult anxieties of those who lost their work or their business and whose economic security has been shaken.
I want to say to you: rest assured that each and every one of you is at the forefront of my thoughts as Governor of the Bank of Israel and those of policy makers.
Alongside the activities we are currently carrying out, and I emphasize that these are done in full collaboration with the Prime Minister, the Minister of Finance and his senior staff, and the National Economic Council—we are focusing now also on the scenarios for exiting the crisis, and our exit strategy from it, so that the economy will be able to return to normal and full activity in the shortest possible time.
I reiterate that we are doing everything we can to ease the adverse impact of the crisis and to return the security and economic stability to each business and each home in the State of Israel as soon as possible.
I am confident and sure that we will exit this crisis stronger!