The Bank of Israel said that the growth in reserves was mostly due to the foreign currency (dollar) purchase program, in place since the end of the first quarter of 2008. A total of $12.1 billion was purchased in 2008. The bank is currently buying $100 million per day Monday-Thursday, and $50 million on Fridays.
According to the bank, for the first time in the past decade, the average level of foreign exchange reserves - in December 2008 - covered all the short-term external debt of the economy -103%, compared with a level of coverage of around 80% in previous years, and was equivalent to 4.8 months of imports, compared with 4 months on average during the previous year.
The holding-period rate of return on the reserves in terms of the numeraire was 5.9%in 2008, up from 4.5% on average in 1999-2008. In the wake of the low level of yields to maturity which prevailed in the United States from the beginning of 2008, the duration of the dollar portfolio was reduced from 24 months to 14 months, to protect from losses as interest rates climb back up.
According to the Bank of Israel, "The events that took place this year in the world underscored that beyond the existence of an appropriate level of reserves, it is also of considerable importance for them to be sufficiently liquid in order to be able to cope in times of crisis. This aim was particularly emphasized in the Bank of Israel's management of the reserves this year."
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