In an attempt to stem the rapid appreciation of the shekel in recent months and especially over the past few days, the Bank of Israel Monetary Committee headed by Governor Prof. Amir Yaron, has announced that it will buy $30 billion in foreign currency in 2021.
The Bank of Israel said, "The advance announcement of the scope of the purchases is intended to provide the market with certainty regarding the Bank’s commitment to dealing with the recent sharp appreciation, and thus support the economy’s continued dealing with the economic ramifications of the Covid-19 crisis."
The Bank of Israel set the representative shekel-dollar rate down 0.574 at NIS 3.116/$. But after its announcement the shekel weakened sharply with the rate up 2.37% in inter-bank trading at 3.199/$.
In 2020, the Bank of Israel purchased $21.2 billion in foreign currency, an all-time record, which now looks likely to be eclipsed by this year's purchases. Even so the massive purchases last year failed to halt the appreciation of the shekel.
In its announcement today, the Bank of Israel said, "In recent months, foreign currency flows into Israel’s economy have intensified, against the background of the growth in the current account surplus, direct investments, large scale foreign currency sales by institutional investors against their investment profits in capital markets abroad, and an increase in investments by nonresident investors in Israeli government bonds, which is also an outcome of Israel’s being included in the WGBI global bond index."
"These factors contributed to a marked appreciation of the shekel, which was also impacted by the weakening of the dollar worldwide against many other currencies. Against this background, and in order to moderate the negative effect of the shekel’s appreciation on Israeli economic activity during the coronavirus crisis, the Bank of Israel increased the scope of intervention in the foreign exchange market, and in 2020 bought a total of approximately $21 billion."
"The Monetary Committee assesses that in order to support the achievement of the Bank of Israel’s objectives and the recovery of the economy from the coronavirus crisis, and in particular to support employment in export industries and import substitute industries, continued foreign exchange market intervention at a broad scope will be required in 2021."
The Bank of Israel concluded," After a series of discussions held over recent days, and in order to increase the certainty regarding the Bank of Israel’s intervention in the foreign exchange market in the coming year, the Monetary Committee decided to change its foreign exchange market policy. The Committee announces that in 2021 the Bank of Israel will purchase $30 billion in the foreign exchange market. This amount is markedly larger than the Bank’s intervention in the past and its assessments regarding the expected current account surplus this year, so that it will also moderate the forces for appreciation deriving from financial factors."
Published by Globes, Israel business news - en.globes.co.il - on January 14, 2021
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