(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
©2019 Bloomberg L.P.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
