Following the continued decline in the dollar exchange rate this morning, the dollar is now trading at a slight increase in light of a new announcement by the Bank of Israel’s Monetary Committee, which has decided to change the Bank’s policy toward the Bank’s foreign exchange market:
The bank announced in advance the expected purchase of about $ 30 billion in 2021 in an attempt (perhaps desperate) to stop the fall in the dollar exchange rate, which today continued to fall by 0.61%, reached a level of NIS 3.1149. Following the Bank’s announcement, the US currency is recovering slightly and is currently rising by 0.36% and trading at NIS 3.1452.
The Bank’s announcement states that “the advance announcement of the volume of acquisitions is intended to provide the market with certainty regarding the Bank’s commitment to deal with the recent sharp appreciation, thus supporting the economy’s continued to deal with the economic consequences of the corona crisis.”
In recent months, the inflows of foreign currency entering the Israeli economy have intensified, against the background of the increase in current account surpluses, direct investments, high-volume foreign exchange sales made by institutional investors against the profits of their investments in capital markets abroad, and increased foreign investment in government bonds Israel, also as a result of Israel joining the global bond index WGBI.
These factors contributed to a significant appreciation of the shekel, which was also affected by the weakening of the world dollar, against the currencies of many other countries.
The Monetary Committee estimates that in order to support the achievement of the Bank of Israel’s goals and the recovery of the economy from the corona crisis, and in particular to support the export and import substitutes industries, it will be necessary to continue to intervene in the foreign exchange market extensively in 2021.
According to the Bank of Israel, “This amount is significantly larger than the Bank’s intervention in the past and the Bank’s estimates of the expected current account surplus this year so that purchases will also moderate appreciation due to financial factors. Purchases will continue as long as they do not devalue the bank.” And financial stability. ”
Towards the end of the year, the Bank will announce the volume of purchases for 2022
The Bank adds that towards the end of 2021, the Bank will announce its intervention policy in 2022, in line with developments in the real economy and the labor market in particular, in the financial markets, and in the inflation trend, and with regard to estimates of the Corona crisis
During 2020 and in order to try and mitigate (without success at present) the negative impact of the appreciation of the shekel on economic activity in the Israeli economy during the corona crisis, the Bank of Israel increased the volume of intervention in the foreign exchange market and purchased a total of $ 21 billion in 2020.
The Bank of Israel purchased $ 4.4 billion last December, in an attempt to stop (without success) the collapse in the dollar exchange rate, the Bank of Israel increased its foreign exchange reserves to $ 173 billion in December; Loans to small businesses worth NIS 3.3 billion.
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