The Bank of Israel has announced a plan to sell up to $30 billion of foreign currency in the open market. This decision aims to stabilize the shekel amidst the ongoing conflict in Gaza. This move marks the first time the central bank is engaging in such a sale of foreign exchange.
The bank’s intervention seemed to have an immediate calming effect on the market, as the shekel recovered from significant early losses on Monday. The central bank stated its intention to moderate volatility in the shekel exchange rate and ensure liquidity for the markets’ proper functioning.
Part of the liquidity provision will include up to $15 billion through SWAP mechanisms. These are derivative contracts where two parties exchange the cash flows or values of different assets.
The central bank has committed to continuously monitor market developments and use its available tools as necessary.
Before the announcement, the shekel had depreciated by more than 2 percent, reaching a nearly eight-year low of 3.92 per dollar. However, it recovered early on Monday to 3.86 per dollar, a decrease of 0.6 percent.
The shekel’s decline in 2023, by about 10 percent against the dollar, has been partly attributed to the Israeli government’s efforts to overhaul the judiciary. Israeli stocks and bond prices had fallen by 7 percent on Sunday, and many businesses closed following a multifront attack by Hamas gunmen, resulting in significant Israeli casualties and abductions.
Israel’s forex reserves exceed $200 billion, accumulated in part from buying foreign currency since 2008 to prevent the shekel from strengthening excessively and impacting exporters.
The Bank of Israel last intervened in the forex market in January 2022. Despite the recent weakening of the shekel contributing to inflation, Bank of Israel Governor Amir Yaron stated in a Reuters interview last month that market intervention was unnecessary as there were no market failures.
The conflict in Israel and Gaza, which has seen significant casualties on both sides, continued into its third day as of the report.
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