Bank of Israel Steps Up Currency Intervention After Holding Rate

(Bloomberg) -- The Bank of Israel significantly raised its purchases of foreign currency last month in a bid to temper the shekel’s appreciation, after abstaining from such moves for most of this year.

The central bank bought $1.3 billion of foreign currency in November, boosting total foreign exchange reserves to a record $122.4 billion or 31.9% of gross domestic product.

The shekel is the world’s fourth-best performing currency against the dollar this year, strengthening on the back of Israel’s current-account surplus, foreign investment and economic growth. But it’s causing an inflation headache for policy makers, keeping price gains well below the central bank’s target range of 1% to 3%.

Market Reaction

• The shekel strengthened against the dollar after the data was released, a sign of the difficulty in reversing the broader trajectory

Key Insights

• In an attempt to weaken the currency, the Bank of Israel stepped up its purchases, first in October with a $314 million buy and now with a much larger purchase in November
• The last big FX purchase before October came in December 2018 as part of the purchase program intended to offset effects of natural gas production on the exchange rate
• November FX purchases come alongside the monetary committee’s decision to hold interest rates steady. A key policy maker told Bloomberg News that the central bank has for now chosen foreign currency buys as a way to stem the shekel’s rise, though other tools have been considered
• Despite those comments, the shekel hasn’t significantly weakened over the past couple weeks

Read More

• For more on the Bank of Israel’s November rates decision, see here. And here is a longer story on the origins of Israel’s FX intervention program, begun under then-governor Stanley Fischer.

To contact the reporter on this story: Ivan Levingston in Tel Aviv at ilevingston@bloomberg.net

To contact the editors responsible for this story: Lin Noueihed at lnoueihed@bloomberg.net, Mark Williams, Amy Teibel

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