BoI again makes major foreign currency purchases

Amir Yaron Photo: PR

Despite his initial reluctance, Bank of Israel Governor Prof. Amir Yaron has now fully embraced forex intervention as an instrument for weakening the shekel.

After buying a total of $1.27 billion in November since its latest interest rate decision, the Bank of Israel is again intervening in the foreign currency market, sources inform "Globes." It appears that the Bank of Israel is again making purchases outside the regular market. Despite his initial reluctance, Bank of Israel Governor Prof. Amir Yaron has now fully embraced forex intervention as a major instrument for weakening the shekel. 

"Globes" reported two weeks ago that the Bank of Israel had decided to make substantial purchases of dollars for the first time since Prof. Amir Yaron became Governor of the Bank of Israel. On that day, Bank of Israel Monetary Committee member Andrew Abir told the Reuters News Agency, "Intervention in the foreign currency market is the most appropriate way today of increasing inflation and boosting the Israeli economy, although cutting the interest rate is still on the table. These matters come following the Bank of Israel's significant intervention in the past week, following the decision to leave the interest rate unchanged, contrary to the market's expectations."

Abir, who manages the Bank of Israel's markets department, noted that the strong shekel was making it difficult for inflation to reach the Bank of Israel's target range (1-3%). "In the current conditions, we thought at the last meeting of the Monetary Committee that the intervention tool was more suitable than an interest rate cut or the use of other tools," he said. "As of now, the operation in the foreign currency market is likely to be the most suitable, but we can always go back to cutting the interest rate. It isn't something that has been taken off the table., but as of now, there are other things that we can do first that may have a greater effect. The use of the interest rate tool is limited, while in theory, purchasing dollars is unrestricted … we can buy as much as we want," he added. "The barrier to reducing the interest rate to below zero is much higher than reducing it to zero or 0.1%."

According to Abir, policymakers felt comfortable with the exchange rate in the past 18 months, but the Bank of Israel now wants to limit the strengthening of the shekel, and to make the market fluctuate. "We want people to worry that we'll suddenly appear again in the market," he said in an attempt to deter speculators in the market.

Published by Globes, Israel business news - en.globes.co.il - on December 10, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Amir Yaron Photo: PR
Amir Yaron Photo: PR
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