On the basis on internal and external models, "the shekel comes out as overvalued Bank of Israel head of market operations Andrew Abir told "Reuters". "The fact that we are intervening means we recognize that the shekel has appreciated beyond the level that can be explained away by fundamentals."
"We continue to intervene in the foreign exchange market ... and sometimes it is to remind the market of that," Abir added. "You have to put a little money on the table to remind people. He said that that Bank of Israel remained committed to fighting the strong shekel through its current policy of intervention but capping the value of the currency as some other countries have was not appropriate right now
"Reuters" says, "In one of the world's strongest performances, Israel's currency appreciated 9% against the dollar in 2013. More importantly to the central bank, it gained 7% versus a key basket of currencies. Its current level of NIS 3.49/$ is a two and a half year high, prompting complaints by exporters about their ability to compete and starting a public debate whether to put a floor under the exchange rate like in Switzerland and the Czech Republic.
Switzerland capped the value of the Swiss franc in 2011 after it had appreciated 35% against the euro since 2007 and feared deflation. The Czechs last November pledged to sell korunas to keep the currency around koruna 27/€ in a bid to boost the economy and ward off a deflationary threat. "These are not conditions relevant for Israel," said Abir. "We look at every policy tool and decide whether it's appropriate given the economic and financial markets situation."
Abir added that, between May and the end of 2013, the central bank managed to stem the pace of appreciation with lower amounts of intervention than in 2008 and 2009. The bank stepped up foreign exchange purchases this month when the shekel started to appreciate again. "What would the exchange rate have been had we not been in the market? Most people would agree that had the central bank not been in the market the exchange rate would have been in a different place than today," Abir said.
"Reuters" notes that, since 2008, the Bank of Israel has bought more than $50 billion of foreign currency to bring its forex reserves to nearly $82 billion. The bank bought $2.1 billion of foreign currency in 2013 and plans to buy $3.5 billion more in 2014 to offset the gains in the current account balance that would boost the shekel, and that will reportedly buy a similar amount in 2015. Natural gas sales and $10 billion in annual direct foreign investment are contributing factors to the appreciation of the shekel.
Responding to exporters' criticism, Abir said, "When we look at the overall economy we have to choose the right policy mix for the whole economy and not just one sector. It's not just exports and the whole tradable sector we look at."
Published by Globes [online], Israel business news - www.globes-online.com - on January 30, 2014
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