This morning, In an unusual move, the Bank of Israel announced a program of intervention in the foreign exchange market, saying that it would sell foreign currency sales to the tune of $30 billion. Despite this, the shekel-dollar exchange rate shot up in early trading today to over NIS 3.9/$. The shekel- dollar rate is currently up 1.46% in comparison with the representative rate set on Friday, before the current round of fighting in the south of Israel began, at $3.9195. The shekel-euro rate is up 1.36%, at NIS 4.128/€.
The Bank of Israel said in its announcement, "The Bank of Israel announces a program to sell up to $30 billion in foreign exchange. The Bank will operate in the market during the coming period in order to moderate volatility in the shekel exchange rate and to provide the necessary liquidity for the continued proper functioning of the markets.
"In addition to the $30 billion program, and as necessary, the Bank will provide liquidity to the market through SWAP mechanisms in the market of up to $15 billion.
"The Bank of Israel will continue monitoring developments, tracking all the markets, and acting with the tools available to it as necessary."
Talking to "Globes", Mizrahi Tefahot chief markets economist Ronen Menachem said that the Bank of Israel’s action was predictable, and that "this step will lead to appreciation of the shekel, partly because the market was not of one mind about what would happen, and there were those who believed that the bank would prefer an interest rate hike."
Menachem added, "The Bank of Israel’s ability to defend against over-appreciation of the shekel is unlimited, whereas its ability to defend against a sharp depreciation is limited to the amount of its currency reserves. For the time being, however, this limitation is not very significant, since the Bank of Israel has reserves amounting to $202.9 billion," Globes reports.
