The decision last September by FTSE Russell, a subsidiary of the London Stock Exchange that provides stock market indices and associated data services, to add Israeli government bonds to its World Government Bond Index (WGBI) is bolstering expectations of shekel appreciation. Israel's inclusion in the index is likely to cause substantial purchases of government shekel bond series.
Such purchases will increase demand for Israeli financial products in the market at a time when players in the foreign currency market expect continued appreciation by the shekel, even though the Bank of Israel has been taking action in the market to weaken the shekel since the latest Bank of Israel interest rate decision.
The Bank of Israel's intervention follows strong growth in foreign direct investment in Israel, a rise in the current account surplus caused by the start of natural gas production at the Leviathan reservoir, a reduction in the exposure of investment institutions to foreign currency, and the announcement that Israel will join the WGBI in April 2020.
The Bank of Israel bought $314 million dollars in October, the largest monthly purchase in almost two years, then followed this by buying $1.27 billion in November. The Bank of Israel also intervened substantially earlier this week.
The Bank of Israel is unhappy about the appreciation pressure on the local currency, but has no doubt about delivering its message. Asked by "Globes" how the Bank of Israel intended to deal with this pressure, Bank of Israel market operations department manager and Monetary Committee member Andrew Abir said that the Bank of Israel would not hesitate to mop up the entire supply created by Israel's entry into WGBI. "According to our assessment, Israel's accession to WGBI will bring $3-5 billion in investment, and that is one of the reasons for the shekel appreciation we saw this summer. As you know, we have purchased a substantial amount of foreign currency since the latest interest rate decision, and we have no problem about the whole amount, if necessary," he declared.
Published by Globes, Israel business news - en.globes.co.il - on December 12, 2019
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