Bank of Israel buys dollars again
The central bank has spent about $500 million in its bid to limit the drop in the shekel-dollar exchange rate. This is its first intervention in exchange rate levels since 1997.
Erez Wollberg and Globes' correspondent 13 Mar 08 11:49
The Bank of Israel reported today that for the second consecutive day it has bought dollars. The central bank was successful in its bid to limit the fall in the shekel-dollar exchange rate, with the representative rate moving up to 3.474, after dipping below 3.40 on Thursday.
The Bank of Israel stated, using virtually the same language as Thursday's terse announcement, that in light of unusual movement in the exchange rate it had bought foreign currency. The announcement did not elaborate on the "unusual movement".
The Bank of Israel apparently intervened more than once in Thursday's trading, and the value of its move reached $400 million. Today's trade, which apparently is a move to return the shekel-dollar exchange rate to near 3.60, reached $100 million.
On Thursday, the Bank of Israel reported that in an unusual, but not unprecedented, move, it bought foreign currency. This was the first intervention by Israel's central bank in the level of the shekel since the summer of 1997. Thursday's trading apparently began when the shekel-dollar exchange rate fell through the psychological barrier of NIS 3.40/$.
The shekel-dollar exchange rate plummeted over 2.2% on Thursday, falling to 3.396 in inter-bank trading. The representative rate was set at NIS 3.403/$. The trade intensified a trend which has seen the exchange rate fall over 11% in 2008.
Thursday's representative exchange rate valued the shekel at $0.2938, compared to the value on December 31, 2007 of $0.259, and the value on March 13, 2007 of $0.2377.
The shekel continues its strength despite expectations that the CPI drop of 0.2% for February could support an interest rate cut by the Bank of Israel at the end of the month. A lower interest rate will make the shekel less attractive to foreign investors. However, the US Federal Reserve Board is also expected to cut the Fed interest rate next week.
The trend in trading in the US dollar is partly a response to the Federal Reserve's injection of credit into the US financial system and supply of dollars to other central banks through swap contracts. These factors have led to an erosion of the dollar's value worldwide.
Published by Globes [online], Israel business news - www.globes-online.com - on March 13, 2008
