The Bank of Israel announced yesterday a change in the foreign exchange purchase policy for the current year: Unlike the policy so far, it announces in advance the volume of purchases next year. Another significant change is the increase in the volume of purchases – by 50% more than last year, which was also exceptional in terms of the level of purchases relative to recent years. Since 2011, the volume of purchases has been single-digit. In 2019, the Bank of Israel purchased more than $ 4 billion, and a year earlier less than $ 4 billion.
As stated, 2020 was an exception with a volume of purchases of $ 21 billion, and next year, according to the Bank of Israel announcement, the volume of purchases will reach $ 30 billion. According to the Monetary Committee of the Bank of Israel, “Towards the end of 2021, the Bank will announce its intervention policy in 2022, in accordance with developments in the real economy and the labor market in particular, in the financial markets and in the inflation trend.”
Dudi Reznik, an interest rate strategist at Leumi Capital Markets, told Israel Today that he would interpret the announcement as a minimum purchase obligation, which would not prevent the bank from purchasing even more, if it deems it necessary. Resnik mentions that already during the term of Governor Stanley Fischer, in 2008, the Bank of Israel announced the volume of purchases in advance, but then he did so on a daily basis, when he announced his intention to purchase $ 100 million a day. According to Resnik, even then this announcement led to the weakening of the shekel, but the weakening did not last long.
The market estimates that this is a particularly large amount of purchases that will probably reach levels of 1.5% of total dollar trading – a rate that does not seem significant, but is effective due to the exact timing of purchases – at the peaks of demand peaks. According to Resnik, “it does not seem at the moment that the dollar can rise beyond the level of NIS 3.25 and its lower level of support seems to be NIS 3, but only as a psychological matter.” According to Resnik, the volume of purchases announced by the Bank of Israel “is an average of $ 2.5 billion per month, a large volume, but it is not certain that such a volume will lead to a turnaround in the foreign exchange market.”
Support line – 3 shekels
The forces for the appreciation of the shekel continue to be strong, and in addition, the fact that Israel is a world leader in the immunization trend may continue to strengthen the shekel in the near future. The shekel, which traded around NIS 3.115 per dollar before the announcement, traded around NIS 3.19 a dollar a short time later – a depreciation of more than 2%, but it is doubtful whether this is an indication for the longer term. Resnik concludes: “It also seems that the market is not currently convinced that a change in the Bank of Israel’s policy will lead to a significant change in foreign exchange trading.”