The Bank of Israel plans to start investing some of its foreign currency reserves in equities abroad by the end of the year, director of market operations Barry Topf told "Bloomberg". He added that the pilot investment would be through index trackers rather than specific stocks, and that investments would be made in the largest, most liquid and sophisticated markets through outside asset managers who haven’t yet been chosen.
“We can achieve a higher return on the reserves without incurring higher risks,” Topf said. “It’s been an extremely difficult environment for investors in general, and especially central banks because their natural environment has been government bonds and fixed-income investments and we know that yields are at historic lows."
Topf added, “This is something which would have been virtually unthought of 10 years ago for a central bank. It has become more accepted because central banks have grown in sophistication."
Commenting on Israel's $76.8 billion in foreign currency reserves, Topf said, “They’ve increased a lot, we think that’s a good thing. The level of reserves is broadly consistent with what we need. That also allows us to be flexible in terms of intervention policy. We don’t have a need to go out and buy reserves but we also don’t have a need to go out and sell."
Topf said that the Bank of Israel’s goal was to return to a situation in which it doesn’t intervene in the market, but that didn’t mean that it would not intervene if the exchange rate diverges markedly from underlying fundamentals.
Published by Globes [online], Israel business news - www.globes-online.com - on June 16, 2011
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