"The Bank of Israel has begun using a major player in the foreign currency market in an effort to raise the shekel-dollar exchange rate above NIS 3.60/$," Prico Risk Management and Investments CEO Yossi Fraiman says. According to him, the measure is designed to deliver a message to speculators "that they can also lose a lot of money by shorting the shekel-dollar rate, not just make money."
The Bank of Israel is not responding to questions about its policy of intervention in the foreign currency market, but Fraiman told "Globes" that its policy has clearly been changing in recent days. "My working assumption is that the Bank of Israel gave the job to a large overseas player. It could be a major US bank, or perhaps two of them. There is one European bank and two US banks that know how to utilize this method, and here there are footprints. It is the work of professionals."
"Globes": Where do you see the change, compared with past intervention?
Fraiman: "The Bank of Israel's intervention was usually at specific points. We did not see consistent interventions in the evening, because it did not disturb the bank if the the shekel-dollar exchange rate fell below NIS 3.40/$, for example, after activity in Israel ended, as long as it went back up over NIS 3.40/$ the following morning. We have not seen the Bank of Israel taking such massive action. In recent days, we noticed, for example, that someone was consistently buying in the evening at less than NIS 3.40/$, aggregately amounting to a massive intervention. We saw the figures for the volume of foreign currency purchases in January, $1.8 billion, which is a very large figure for a single month."
But the volatility of the shekel against the dollar has not lessened.
"Volatility is not expected to lessen. The Bank of Israel is first of all operating against the trend. When it detects that other currencies are weakening against the dollar worldwide, but the shekel is strengthening against the dollar, it is clear that there is a reason for it. The appearance by Governor of the Bank of Israel Karnit Flug, who announced and confirmed that speculative forces were operating in the market, should be noted. Previously, this has not been the case. The Bank of Israel entered the market and intervened. We went along with that, and other overseas players did the same. When the Bank of Israel takes the right action, the technical players also start riding the wave. The players who use models or algorithms join the trend, thereby creating a small avalanche that became bigger and bigger, and that's what we've seen in the past 10 days."
In other words, the change has been felt mainly since the beginning of the month.
"Exactly. We saw on Friday how the shekel continued to fall as expected, and we almost reached NIS 3.54/$. Someone is building a large position here, and in my opinion, it is the Bank of Israel. We have been saying every day that there is a player or several players buying, including on days when the supply is large, such as at the beginning of the month, when the exporters sell foreign currency, but the player is not deterred from buying foreign currency. This fits in with the 34% guideline (the ratio of foreign currency reserves to GDP), which is no longer being fulfilled."
Is it possible that a new target has been set, for example 40%?
"Even if it is 50%, it will not surprise me."
What effect will events in the north have?
"They have no significance. A fall in Teva's share price in New York is far more significant than events in the north. A fall in Teva's share price can lead funds to sell their holdings and buy dollars in order to take the money out. People are already accustomed to events in the north, as long as no infrastructure is damaged."
Published by Globes [online], Israel Business News - www.globes-online.com - on February 11, 2018
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