"We estimate that the Bank of Israel has to purchase $1 billion per month on average in 2014 to prevent a shekel appreciation in nominal effective exchange rate (NEER) terms. We recommend keeping a cautious eye on the amount of foreign exchange interventions," says Bank of America Merrill Lynch in its daily GEMS report today.
"With the current account surplus projected to increase, the range of foreign exchange purchases should be extended to $1-1.25 billion a month by 2015. This includes about $300 million for compensation of gas production and about $750 million net purchases to compensate other foreign exchange flows, says Merrill Lynch, adding, "The Bank of Israel averaged about $400 million of foreign exchange purchases, in addition to gas purchases, per month in 2013 since beginning the program last May. That did not stop shekel appreciation; it only slowed it from -1.2% per month to 0.4% per month."
Merrill Lynch says that the Bank of Israel plans to purchase $3.5 billion in 2014 to offset the effect of natural gas production on the exchange rate. It bought $1.73 billion in January, in an active intervention in the market. "We expect the current account surplus to increase by about $2.5 billion in 2014, from $4.5 billion in 2013 to $7 billion in 2014, which would add additional pressures on necessary foreign exchange purchases by the Bank of Israel," it adds.
Published by Globes [online], Israel business news - www.globes-online.com - on February 12, 2014
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