Bank of Israel to purchase $10 billion

Bank to increase foreign currency holdings starting next week by purchasing 25 million daily.

By SHARON WROBEL
bar-on 224.88 (photo credit: Ariel Jerozolimski)
bar-on 224.88
(photo credit: Ariel Jerozolimski)
Bank of Israel Governor Stanley Fischer announced plans on Thursday afternoon to dramatically increase the bank's foreign currency reserves over the next two years by buying $25 million of foreign currencies daily. "We have been waiting for this move over the past months during which the shekel appreciated sharply against the dollar, damaging exporters' profits and threatening the economy. The action is expected to slow down or put a halt to the rapid appreciation of the shekel against the dollar," Shlomo Maoz, chief economist at Excellence Nessuah, told The Jerusalem Post. "The decision by the central bank is a signal that it will act in the foreign currency market in a continuation of the intervention it began at the end of last week." In a statement released on Thursday afternoon, the Bank of Israel said that it had decided to increase its foreign currency reserves to between $35 billion and $40b. It currently has about $28b. in foreign currency reserves. Following the announcement, the dollar strengthened 1.3 percent against the shekel to 3.44, from 3.39 earlier. "The central bank needs to increase its foreign reserves by more than $10b. to help the economy grow," said Maoz. "At the same time, the bank should have not published exact details about the amounts it intends to buy, to leave some uncertainty in the market because of the speculators there." At the end of last week, Fischer surprised the markets with an intervention in the foreign currency, the first one in 10 years, to stem a rapid slide in the dollar, which fell to 3.35. Although the central bank did not provide details about the sum of dollars it bought, estimates are that it was in excess of $500m. over a two-day period. The bank reiterated that the plan to increase the foreign currency reserves level does not change its policy as far as the bank's focus on price stability is concerned, and secondary to that, on support of other economic goals of the government, specifically growth and employment.