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The Bank of Israel recently told Finance Ministry officials that it was considering issuing long-term (more than one year) bonds without consulting with the treasury.

Sources close to negotiations between the two bodies say the central bank's announcement ticked off professionals in the treasury and further exacerbated the bad blood between the ministry and the Bank of Israel.

The central bank has been battling to add the option of issuing long-term bonds to its monetary toolbox. The treasury, which issues such financial instruments, has insisted that the bank coordinate bond issues with it. In the discussions over the new Bank of Israel Law, the central bank agreed to the demand, on condition that it be included in that law. Now it is saying it doesn't need the treasury's approval.

"We agreed to the treasury's condition, according to which its approval would be required to issue long-term bonds, even though from our point of view that would be an undesirable step. We wanted to promote the new Bank of Israel Law," a senior Bank of Israel official said. "Now that they're going back on their word we're also backtracking on this and other issues in which the treasury is butting in where it doesn't belong."