The Bank of Israel on Monday bought dollar reserves to combat a stubbornly
strengthening shekel for the first time since July 2011, taking some $100
million out of the market.
A strong shekel, which dipped below 3.60 to
the dollar on Monday, can weaken Israeli export market by making goods
relatively more expensive to foreign buyers.
The rate against the dollar
alone probably would not lead to an intervention were the dollar also weakening
against most global currencies. But the opposite was true in March, while the
shekel was strengthening against a basket of currencies.
According to the
Bank of Israel, the shekel rose 4.4 percent against currencies of Israel’s main
trading partners over the past year, including 2.8% in March.
may have been more symbolic than anything, FXCM CEO Tal Zohar said. The central
bank was trying to remind speculators that it was willing to intervene in the
market if necessary, he said.
“This first interference was a signal to
the market, saying to the speculators: ‘Be careful, beware, we are still here,’”
Zohar said. “One hundred million dollars sounds like a lot to the average
person, but in the capital markets it’s nothing, it’s a drop in the
One of the factors pushing up the currency has been new gas from
the Tamar offshore field flowing into Israel. Dollars are expected to flow in to
buy the gas, making them cheaper to buy for shekel holders. Bank of Israel
Governor Stanley Fischer, in his annual report last week, urged Israel to create
a sovereign-wealth fund to mitigate the effect of natural gas on the
“Currently the gas in Tamar does not create a cash flow in the
currency market, but the fact that Israel has this energy source for the next 20
years does create more trust in the Israeli economy,” Zohar said.
other factor keeping the shekel strong, he said, is the strong signal from
Finance Minister Yair Lapid that he is serious about the
Israel’s budget deficit for the first quarter of 2013 was nearly
triple that of the same period a year earlier, NIS 4.6 billion, compared with
NIS 1.6b., according to data released Monday by the Finance Ministry.
numbers do not bode well for the state’s finances, as 2012 ended with a deficit
of 4.2% of GDP, well above the 3% target. In its annual report issued earlier in
the month, the Bank of Israel predicted that this year’s deficit would also miss
the target and would be 3.6% of GDP.
Even if it fails to hit the deficit
target, the government must, by law, trim NIS 13b.
from spending promised
for the 2013 budget. On Sunday, Lapid decided to do away with the two-year
budget, primarily because deficit projections for that period of time tended to
be inaccurate. However, since the state is only expected to pass the budget
about halfway through the year, it will still present the 2013 and 2014 budgets
together this year. In the meantime, the government will continue operating on a
month-to-month version of the 2012 budget.
According to the Finance
Ministry, the deficit for March was NIS 2.9b. About a third of the spending for
the month was devoted to paying interest, while the remainder went to government
offices. A Finance Ministry analysis found that the greatest cost increases were
in civilian offices, in which salaries and transfer payments rose 10.2% compared
with the same period last year.
Tax revenues were slightly lower than in
the first quarter of last year. One of the reasons for low tax revenues was a
high level of refunds, which grew at a rate of 48% to NIS 1.5b.