BoI may increase purchases of foreign currency

The shekel plunged the most in almost a month onMonday after the Bank of Israel said it may purchase more than $100million a day in the foreign-exchange market in the event of what itcalled "unusual movements."
Theshekel retreated as much as 1.5 percent to 3.8315 per dollar, itslowest since July 8. It was at 3.7880 at 6:08 p.m. in Tel Aviv afterearlier trading up as much as 1% at a seven-month high of 3.7387. Thecurrency 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 inthe event of unusual movements in the exchange rate that areinconsistent with underlying economic conditions, or when conditions inthe foreign-exchange market are disorderly," the bank said Monday in ane-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 reactto this announcement," Tal Avda, vice president of investments at ClalForex, a foreign-exchange broker in Herzliya, said Monday. In the longterm, he said the move was "a useless attempt" to control thedollar-shekel exchange rate, because the "major force that moves themarket is the value of the dollar in the global currency market."
The central bank started buying dollars in March2008 and has since accumulated about $50 billion in foreign-currencyreserves. It has been buying $100m. a day since July of last year in aneffort to weaken the shekel and help prop up exports, hurt by a drop indemand brought on by the global financial crisis.
The bank said last Monday it would end its program of buyinggovernment bonds this Wednesday, as the economy shows signs ofrecovery. Those purchases were aimed at helping to push down corporatebuying costs.
Analysts had speculated that the bank's next move would be to cut or end foreign-currency purchases.
More about:Tel Aviv, Herzliya