Beginning today, the Bank of Israel is increasing its purchases of dollars to $100 million a day. The representative shekel-dollar exchange rate rose 2.6% to NIS 3.314/$. The shekel-euro exchange rate was also higher, rising 2.561% to NIS 5.2061/€.
The shekel-dollar and shekel-euro rates had been falling sharply before the announcement.
The Bank of Israel said that it decided to increase the pace of purchases after examining the program in light of current market conditions, and the cumulative and rapid change in the exchange rate of the shekel. In March, the Bank of Israel announced a program to increase the level of foreign exchange reserves to $35-40 billion.
Until today, the Bank of Israel purchased dollars during regular foreign currency trading days when its publishes the representative rates. No purchases were made on Friday's and holiday eves, when trading is thin and is only conducted by banks.
The Bank of Israel has purchased more than $2.1 billion worth of dollars to date. The central bank originally planned to buy $4.5 billion worth of dollars by year-end. Until now, purchases of dollars averaged $400 million a month, but it is now expected to jump to $100 million a day, and the monthly rate could reach $1.6 billion, assuming four trading days a week. At this rate, the Bank of Israel will reach its original target of buying $10 billion worth of dollars by the end of the year.
Sources inform ''Globes'' that Governor of the Bank of Israel Prof. Stanley Fischer decided to quadruple the daily pace of dollar purchases only 20 minutes before the announcement was released. The decision to make an immediate announcement was taken to prevent arbitrage or use of insider information by more sophisticated foreign currency traders at the expense of the general public.
The decision was taken at a special meeting of the Bank of Israel senior monetary forum, which Fischer heads. Other members include Deputy Governor Zvi Eckstein, head of research Dr. Karnit Flug, and head of markets Barry Topf.
The Bank of Israel dismissed out of hand claims that foreign currency speculators were behind the shekel's rapid appreciation against the dollar and euro. The central bank's daily and comprehensive market studies found no evidence of such activity.
The Bank of Israel found that the shekel's rapid appreciation against the dollar and euro was mainly due to the return of foreign investments by Israelis who have sold foreign securities and direct investments. This return of capital was precipitated by the global financial crisis and falling prices on stock markets, as well as expectations that Israel's GDP growth in 2008 and 2009 will be much greater than in the US or Europe.
The Bank of Israel advised not to measure the success of the program on either an hourly or daily basis.
Published by Globes [online], Israel business news - www.globes-online.com - on July 10, 2008
© Copyright of Globes Publisher Itonut (1983) Ltd. 2008