Former BoI candidates split about exchange-rate floor

Chief economist at Bank Hapoalim says maintaining the floor would be difficult and challenge the bank’s credibility.

People make transactions at Bank Hapoalim ATM 370 (photo credit: Ariel Jerozolimski)
People make transactions at Bank Hapoalim ATM 370
(photo credit: Ariel Jerozolimski)
Leo Leiderman, chief economist at Bank Hapoalim and a former nominee to become governor of the Bank of Israel, said Wednesday he is against imposing a floor for the exchange rate.
Speaking at the CFO conference in Eilat, Leiderman said: “Our experience has taught us that in order to be effective, its desirable that intervention will be carried out in a way that doesn’t give ‘insurance’ to actors in the market regarding how much, when and what level of exchange rate the central bank will buy or sell foreign currency.”
Maintaining the floor would be difficult and challenge the bank’s credibility, he said.
Last week, the Bank of Israel continued its policy of foreign-exchange intervention to bring the shekel’s exchange rate back above 3.5 to the dollar, where it has remained since.
The policy, which began under former governor Stanley Fischer in May, was intended to ease fluctuations in the market, given the exposure of Israeli exporters to a continually strengthening shekel.
On Monday, Bank of Israel Governor Karnit Flug deflected a question from the Knesset Finance Committee on the matter, saying she would not discuss the issue publicly.
A week earlier, however, former deputy governor Tzvi Eckstein, who was a short-listed candidate for the governorship before Flug was ultimately picked, came out in favor of a floor.
In an interview with Globes last Thursday, Eckstein said: “According to my analysis, there is room to set an exchange floor with the dollar of NIS 3.3 to NIS 3.34 to the dollar. An exchange floor must be part of a Bank of Israel policy that supports another goal: boosting growth and employment under the price-limit target.”
Eckstein refused to directly criticize Flug, saying he respected her work and that the policy point was simply a matter of disagreement.
The Manufacturers Association of Israel concurred, calling on Flug to set a limit to the shekel’s strengthening to aid the export sector, although it called for the floor to be set significantly above the current level, at 3.8.
“The current dollar exchange rate creates hardships for Israeli industry’s competitiveness and is making exports not worth it in many cases,” the association’s CEO Tzvika Oren said Sunday.
Globes contributed to this report.