Analysts are weighing in on the Bank of Israel's decision to end its program of buying $100 million a day tomorrow.
Energy Finance's Yossi Frank says, "The Bank of Israel made the right decision, since we're talking about a market in which the most important thing is inscrutability. The fact that the Bank of Israel was clear and transparent about its intervention in the foreign currency market worked against it in recent months. Obviously, traders will want proof about the central bank's interventions in the market, and they will parse the announcement. The Bank of Israel must therefore constantly keep its finger on the pulse. The timing of the announcement was very odd. This step should have been taken four months ago, because foreign investors did not wait long to test the Bank of Israel in the market. Speculators will definitely try to exploit the right opportunity to test the Bank of Israel's seriousness, because there are a lot of speculators in the market, and they didn’t run away last week either.
Excellence Investments chief economics Shlomo Maoz says, "The Bank of Israel's announcement that it is ending its intervention is welcome, and the fact that it will intervene arbitrarily is a winning move. When playing poker against international capital movements, there is no place for openness, and the players should not know what cards you hold. Ending the intervention and stopping the printing of money are signals that the next step will be to raise the interest rate, because the two previous measures - ending the purchases of government bonds and ending the intervention in the foreign currency market - were intended to prevent future inflation. The next step will be to raise the interest rate, and it has to be done on time, and not late as was the case with the foreign currency market. The Bank of Israel's experience in the foreign currency market means that it will have to raise the interest rate at the end of this month. The speculators will be working in the dark, and capital movements will therefore be more real. Ultimately, this process will be good for enterprises because they'll see lower inflation."
First International Bank of Israel dealing room head Dror Zakash says, "Fischer has again made the market uncertain. Whereas before he said that he would $100 million a day and intervene at his discretion, he has now made the market uncertain in order to give speculators less confidence in the form of less information. Fischer may also be signaling exporters that what has to be done will be done. The shekel-dollar exchange rate plummeted immediately following the announcement, but it's hard to know if the move was right or not. Making the market more uncertain in order to reduce the number of speculators was right, and Fischer is always upsetting the board to prevent traders having time to organize. I believe that he will continue to intervene in the market whenever necessary and at extreme points, but it should be remembered that currency intervention is necessarily limited and not infinite."
Published by Globes [online], Israel business news - www.globes-online.com - on August 10, 2009
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