The shekel continues to weaken on the foreign exchange market, despite intervention by the Bank of Israel to ease the shortage of foreign currency. The shekel-dollar rate is currently 4.24% above yesterday's representative rate, at NIS 3.886, and the shekel-euro rate is up 2.87%, at NIS 4.281. In mid-February, the shekel-dollar rate was below at NIS 3.45/$ and the shekel-euro rate was below NIS 3.7/€.
Yesterday's exceptionally tempestuous session on the foreign exchange market saw unusual intervention by the Bank of Israel, which injected liquidity through an auction for the banks, but still left some injured parties with criticism of the results of the move.
"What went on yesterday in the foreign exchange market is not good for the Bank of Israel," one market player told "Globes". "The central bank injected huge amounts into the market for the sake of liquidity, but its plan didn’t work and didn't percolate through to actual quotes on the market. You could say that the bank made do with broadcasting that it had done its bit. Someone benefitted, but it wasn't the market." The source expressed the belief that the Bank of Israel preferred not to intervene in spot trading in order not to hold back the shekel-dollar rate from rising.
In response, a source in the Bank of Israel said, "The fault lies with the institutions that got themselves into a problem and became over-leveraged on contracts, while the Bank of Israel supplied them with liquidity on the foreign exchange market. In fact, the same players who accused us of buying too many dollars and holding too high reserves are those who want us to use those reserves now.
"The bank will continue to monitor the foreign exchange market and if it sees the need to use additional tools it will do so," the source continued, adding that there was a global shortage of dollars and that the central bank was now letting the banks, which are apparently full with finance to the institutions, and the institutions themselves, buy enough dollars.
At any rate, even if the Bank of Israel's move did not exhaust the potential that those in need of dollars hoped for, its intervention was still an unprecedented move, in which it began yesterday to supply foreign currency to financial institutions via short-term loans for a week, in a declared attempt to halt the sharp rise in exchange rates against the shekel. In the past, senior Bank of Israel officials said that the foreign exchange market "isn't our problem", and preferred not to intervene. Incidentally, the Bank of Israel is now also intervening in the government bond market, another exceptional move.
Mizrahi Tefahot Bank chief economist Ronen Menachem told "Globes" yesterday, "The upheaval in the markets initially did not affect the shekel, among other reasons because of the addition of Israeli government bonds to the international indices this year. Now, however, due to the falls overseas, investment institutions exposed to investments on overseas stock markets are having to meet margin calls, and their demand for dollars has therefore risen substantially.
"Furthermore," Menachem added, "bear in mind that the shekel has been the world's strongest currency for a long time, despite Israel's country and political risk. It could be that the first days of the depreciation became a trigger for yet stronger movement, and at the moment it is speeding up because of mounting risk aversion."
Published by Globes, Israel business news - en.globes.co.il - on March 17, 2020
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