Terms and Definitions

Bank of Israel Interest Rate

The Bank of Israel interest rate is the interest rate at which the Bank lends funds to, or borrows funds from, banking corporations; it is set by the Bank’s Monetary Committee.
Bank of Israel declared interest rate

The Bank of Israel declared interest rate is the interest rate determined by the Bank’s Monetary Committee at the end of each liquidity period. This declaration has been customary since the end of 1993, and serves as a benchmark for commercial banks. Based on this rate, the banks change the interest rates on unindexed shekel deposits and credit. The declared interest rate also affects the banks’ Prime Interest Rate, and in recent years the prime rate has been approximately 1.5 percentage points higher than the declared interest rate. Up until January 1998, the declared interest rate was a main factor in determining the interest rate on monetary loans at auction, which the Bank of Israel would extend to the commercial banks.
Since then, the declared interest rate has served as the primary benchmark for setting the interest rate at auction for banks’ deposits with the Bank of Israel.
Interest rate on banks’ deposits with the Bank of Israel

The interest rate on banks’ deposits with the Bank of Israel is the weighted average interest rate determined in the deposit auctions for various terms, that have been customary since June 1996.
Monetary loans

The Bank of Israel makes monetary loans available to the banking corporations under Section 36(4) of the Bank of Israel Law, 5770-2010, through monetary loans for periods of one day and one week, as needed. There are also credit window loans. The loans are made against collaterals defined by the Bank of Israel.
Monetary deposits

The Bank of Israel accepts shekel deposits from banking corporations in accordance with Section 36(3) of the Bank of Israel Law, 5770-2010, within the framework of deposit auctions for periods of one day, one week, and liquidity period as needed. There are also window deposits.
Monetary auctions (deposits or loans)

The auctions are intended for the banking corporations. The scopes of the auctions and the repayment dates are published in advance to the banking system.
Every banking corporation may submit a bid to the Market Operations Department in the Bank of Israel, with the amount and interest rate it is offering, in accordance with the following conditions:
The auction is a discriminatory auction based on the interest rate.
In a loan auction the interest rate offered shall not be lower than the Bank of Israel interest rate, and in a deposit auction the interest offered shall not be higher than the Bank of Israel interest rate.
The bids shall be with interval in interest rates of one basis point (one hundredth of one percent).
The total bids of each individual banking corporation shall not exceed the total loan amount offered through the auction.
Credit window

The Bank of Israel makes a credit window available to banking corporations at a rate of interest currently 0.1 percentage points above the Bank of Israel interest rate. The loans are extended against collateral, are for one business day, and are repaid automatically on the next business day.
Deposit window

The Bank of Israel makes a deposit window available to banking corporations for monetary deposits at an interest rate currently 0.1 percentage points below the Bank of Israel interest rate. The deposits are for one business day, and are repaid automatically on the next business day.
Makam (short-term Bank of Israel bills)

Makam are government securities issued by the Bank of Israel and used by the Bank as one of its monetary instruments. Makam are issued for terms of up to one year, are not CPI-indexed, and do not bear interest. They are traded at prices lower than their nominal value (i.e., traded at a discount). Makam are issued by auction to the public.
New makam series issued via auction are registered for trading on the TASE on the first business day after the auction.
Repo (repurchase agreement) auction

A repurchase agreement, offered by discriminatory auction based on the interest rate, is one in which the Bank of Israel purchases tradable government bonds and makam and sells them back at the end of the transaction term at a price calculated based on the purchase price plus the auction interest rate.
Such a transaction is essentially similar to a loan secured with collateral. However, in contrast to that, in a case in which the borrower does not fulfill its side of the transaction, the asset is the legal property of the lender, who can sell it immediately.
Repo auctions are open to banking corporations, provident funds, insurance companies, pension funds and mutual funds.
As of October 2009, Bank of Israel repo auctions were stopped until further notice.
Discriminatory auction

This is an auction in which participants may bid different amounts at different rates of interest, according to the type of auction. Winning bidders pay or receive the interest they bid on the entire amount.
Allocation percentage in auction

The percentage obtained by dividing the amount remaining for allocation at the closing interest rate by the amount requested at that interest rate.
Average price/interest rate

The price/interest rate calculated by weighting the prices/interest rates paid in a discriminatory auction by the relative amounts of winning bids at each price/interest rate. 
Closing interest rate

The lowest interest-rate allotted bid in monetary loan or repo auctions, and the highest in deposit auctions.