BoI may increase purchases of foreign currency

Shekel falls as announcement gives boost to weakened dollar.

shekels good 88 (photo credit: )
shekels good 88
(photo credit: )
The shekel plunged the most in almost a month on Monday after the Bank of Israel said it may purchase more than $100 million a day in the foreign-exchange market in the event of what it called "unusual movements." The shekel retreated as much as 1.5 percent to 3.8315 per dollar, its lowest since July 8. It was at 3.7880 at 6:08 p.m. in Tel Aviv after earlier trading up as much as 1% at a seven-month high of 3.7387. The currency fell as much as 2.3% versus the euro and was last at 5.4577. "The Bank of Israel will act in the foreign-exchange market in the event of unusual movements in the exchange rate that are inconsistent with underlying economic conditions, or when conditions in the foreign-exchange market are disorderly," the bank said Monday in an e-mailed statement. "We're going to see a spike up in the shekel-dollar exchange, with the shekel weakening in the immediate future as speculators react to this announcement," Tal Avda, vice president of investments at Clal Forex, a foreign-exchange broker in Herzliya, said Monday. In the long term, he said the move was "a useless attempt" to control the dollar-shekel exchange rate, because the "major force that moves the market is the value of the dollar in the global currency market." The central bank started buying dollars in March 2008 and has since accumulated about $50 billion in foreign-currency reserves. It has been buying $100m. a day since July of last year in an effort to weaken the shekel and help prop up exports, hurt by a drop in demand brought on by the global financial crisis. The bank said last Monday it would end its program of buying government bonds this Wednesday, as the economy shows signs of recovery. Those purchases were aimed at helping to push down corporate buying costs. Analysts had speculated that the bank's next move would be to cut or end foreign-currency purchases.