The Bank of Israel's interventions in the foreign-exchange market were exceptional responses to the global crisis intended to keep the shekel in equilibrium, the central bank said Sunday.
"The central bank does not have a specific exchange-rate target," the Bank of Israel said in a statement after a one-day summit with foreign-exchange officials. "We regard the current period of intervention in the foreign-exchange market as exceptional, a result of the not yet ended global crisis.
"We expect that the market will return to a situation closer to that of 1998-2008, when the Bank of Israel did not intervene at all in the foreign-exchange market - or at least, that the need to intervene will occur only rarely, in exceptional circumstances."
At the end of last week, the Bank of Israel bought approximately $250 million after the shekel strengthened to NIS 3.7 against the greenback.
"In Israel, we still believe that the Bank of Israel will hike the policy rate by 25 basis points later this month," Barclays Capital analysts said Sunday. "Yet, at the same time, the Bank of Israel also intervened in the foreign-exchange market again last week to ease the ongoing appreciation of the shekel against the dollar."
The central bank began buying millions of dollars in March 2008 to boost the country's foreign-currency reserves - now at a record $52 billion - in an effort to weaken the exchange rate so as not to undermine exports. On August 10, the central bank ended set purchases of foreign currency and indicated a willingness to buy foreign currency in the event of "unusual movements" in the shekel.
"The bank does have estimates of what is known as the equilibrium exchange rate of the shekel, based on the fundamental determinants of the balance of payments of the economy," the central bank said. "These estimates typically change over the course of time as economic conditions change."
Other factors were also at play to cause a depreciation of the shekel, the statement said. For instance, imports fell more sharply than exports during the global crisis, and it is likely that they will recover sharply as the global economy recovers.
Furthermore, there are indications that foreign investment by Israeli firms and household is beginning to recover, and also that the pace of foreign direct investment into Israel may be slowing somewhat.
When evaluating changes in the exchange rate of the shekel, the central bank considers not only the exchange rate against the dollar, but also the exchange rate of the shekel against other currencies, particularly the euro, the bank said.
At the summit, central bank officials said the effective exchange rate of the shekel, which is an index of the exchange rates of the shekel against a basket of currencies, appreciated by less than the exchange rate of the shekel against the dollar. During the six months ending September 30, the shekel appreciated by 10.6 percent against the dollar, while its effective exchange rate appreciated by 3.2%.