Strong Shekel Forced Record Levels of Central Bank Intervention
(Bloomberg) -- The Bank of Israel bought $4.4 billion dollars in foreign currency during December, the most in one month since at least 2009, in a bid to slow the appreciation of the shekel.
Despite the outsized purchases, which brought total central bank intervention in 2020 to $21.2 billion, the shekel strengthened 7.5% last year against the dollar -- the sixth-most among a basket of 31 major currencies tracked by Bloomberg. Central bank Governor Amir Yaron said foreign-exchange purchases will continue as necessary this year.
- The fresh round of currency purchases brought Israel’s total reserves to a record $173.3 billion, or 43.3% of output, and Yaron has said the level of reserves won’t limit the current policy
- Israel’s currency is seen driven by factors including the current-account surplus and foreign investment in the tech sector
- Earlier this week, the shekel reached a 24-year high against the dollar, as the outlook for economic growth in 2021 rises on the back of Israel’s world-leading vaccination campaign
- Monetary policy officials have cautioned the strong currency could act as a drag on inflation and exports, but Yaron said this week that service exports have been notably good during the current crisis, and recently there has been a recovery in goods exports as well
- The shekel was trading little changed Thursday afternoon in Tel Aviv, at about 3.18 per dollar
- For an explanation of the shekel’s strengthening trend, and why the Bank of Israel has had difficulty slowing its appreciation, check out this question-and-answer.
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