Tel Aviv Shares Rally on Report of Shifting Monetary Policy

HSBC report says Bank of Israel may launch quantitative easing program, cut interest rate to minus 0.2%.

Emil Salman

A report by the British bank HSBC predicting the Bank of Israel would launch a quantitative easing program and cut interest rates below zero sent shares and bonds soaring on the Tel Aviv Stock Exchange on Thursday. The dollar gained in late trading.

The benchmark TA-25 index closed 1.4% higher at a record 1,601.20 points and at one point was as much as 2.3% higher. The broader TA-100 index finished 1.2% up, at 1,406.55 points. Trading volume was 1.12 billion shekels ($277.547 million).

The Tel-Bond 20, 40 and 60 indexes rose as much as 0.3% while the government’s 10-year shekel bond jumped 0.63%, cutting its yield to 1.51%. The shekel bond due in 2042 soared 1.88%, cutting its yield to 2.58%.

In a report to clients, HSBC analysts Murat Toprak, Melis Metiner, Di Luo and Tom Nash said Israel’s central bank could introduce a program of quantitative easing that could reach as much as 72 billion shekels and cut its base lending rates to under zero next week. The Bank of Israel declined to comment on the report.

While the shekel has lost value against the dollar, it has appreciated against the euro, despite three interest rate reductions since last summer that have cut the base interest rate to a record low 0.1% and a program of foreign-currency buying. The Bank of Israel wants to weaken the shekel to help exporters and Israel’s export-dependent economy.

“To achieve this, the central bank has no other option but to adopt new unconventional tools. This is especially true given Israel’s strong macro fundamentals which may foster and accelerate unwelcome shekel appreciation without bold monetary easing,” HSBC said.

QE, which in effect means the central bank would be printing money as it buys up government bonds in the market, has been used by the U.S. Federal Reserve since 2008 and earlier this month the European Central Bank launched its own program.

News of the HSBC report sent the dollar and the euro higher in late trading. The greenback was trading late on Thursday at 4.036 shekels, compared with a Bank of Israel rate set at 3:30 P.M. of 4.0060. The euro was at 4.2919 versus a Bank of Israel rate of 4.2671.

HSBC said the bank would, as a first step, lower the interest rate by 20 basis points to minus-0.1% at the next meeting of its Monetary Committee on Monday. The timing of the QE program is still not clear, but HSBC said it would get under way either with the rate cut or wait until the second quarter.

While the Bank of Israel might opt to buy as few as 24 billion shekels of bonds, if it went for 72 billion that would be equal to 7$ of gross domestic product and 14% of government debt.

Bank shares led the TASE higher, with Bank Hapoalim climbing 1.7% in heavy trading to 18.36 shekels and Bank Leumi up 1.3% at 13.61. Bezeq also rose sharply, adding 4.4% to 7.15. Leading TA-100 shares higher, Gilat ended up 6% at 22.66 shekels.