The Bank of Israel announces the following changes in the monetary instruments used to operate the interest-rate policy.

16.8.2005
 
The Bank of Israel announces the following changes in the monetary instruments used to operate the interest-rate policy.
 
  The Bank of Israel will provide a monetary loan window for the banks at a rate of interest one percentage point higher than the Bank's monthly key policy rate.
  Along with monetary loans the Bank will operate a new monetary instrument-a surplus-liquidity-deposit window at the Bank of Israel at a rate of interest one percentage point lower than the Bank's policy rate.
  The above changes will determine an interest-rates corridor two percentage points wide. The midpoint of the corridor will be the Bank of Israel's rate of interest, with the monetary-loan-window interest rate above it and the deposit window rate below it.
  The Bank of Israel is canceling the existing arrangement that enables banks to carry out interbank transfers at the previous day's value date.
With effect from 1 September 2005 the system of monetary loans by quota is changing. The loans are intended to enable every bank to draw liquidity according to its immediate needs towards the end of the business day. The new arrangements are the same as those used by the European Central Bank (ECB) and other central banks.
In place of the quota loans system, the Bank of Israel will provide a monetary loan window, without quotas, at an interest rate one percentage point higher than the Bank of Israel rate. The loan will be fully collateralized such that each bank's collateral will determine the size of the loan it can obtain. Currently the Bank makes available 27 loans by quota with interest spreads of 0.1 percentage points between one loan and the next. The present interest rate on the loans is between 2.8 percent at the lowest interest level and 5.4 percent at the highest level. The total loan to the whole banking system amounts to about NIS 100 million. The quotas are allocated to the banks according to each bank's share of the total reserve requirement of the whole banking system.
Concurrently the Bank of Israel is introducing a new monetary instrument, a deposit window at the Bank of Israel, at an interest rate 1 percentage point below the Bank's published interest rate. The deposit window will enable banks to deposit surplus liquidity at the Bank of Israel. At present the banks are unable to do so. Hitherto, interest on surplus liquidity at the Bank of Israel was 3.2 percentage points below the Bank of Israel key rate.
The above changes will determine an interest-rates corridor with a width of 2 percentage points, with the Bank of Israel key rate at the midpoint. For example, at today's Bank of Israel interest rate of 3.5 percent, the interest rate on the monetary loan window would be 4.5 percent , and the interest on the deposit window, 2.5 percent. The interest rate for interbank transactions will move within this range.
The Bank of Israel also announces that the arrangement permitting banks to perform interbank transfers at the previous day's value date will end on 1 November 2005. The background to this is the reform in Israel's payment system currently being planned by the Bank of Israel, mainly the introduction of a Real Time Gross Settlement (RTGS) system. Since 1982 the Bank has allowed banks to carry out interbank transfers with the previous day's value date, and interbank check clearance is at the value of the date of their presentation in the clearing house. As the results of clearance are only known to the banks on the next day, the Bank of Israel allowed banks to carry out interbank transfers at the previous day's value date. The arrangement was a uniquely Israeli one?in most countries check clearance takes place at a later date. As part of the reorganization leading to the introduction of the RTGS system, in which transactions at the previous day's value date are not allowed, it was decided to end that practice even earlier, and to cancel the Bank of Israel's guarantee of such transactions. This new system will be in force until the RTGS system is operational.