The Bank of Israel bought "hundreds of millions" of dollars of foreign currency on Monday as the shekel continued to strengthen for a fifth straight session.
According to one dealer at an Israeli bank, the Bank of Israel started buying at a dollar/shekel rate of around 3.84. The exchange rate had weakened to 3.90 on June 27th following the Brexit vote but moved back quickly to 3.85.
The central bank has been buying dollars since 2008, boosting its foreign currency reserves by some $70 billion to $96.5 billion. Its policy is aimed at protecting exports, which comprise about 31 percent of economic activity.
Objection to Intervention Policy
The latest move seems to have followed an article in TheMarker that reported on the objection to the intervention policy by PM Benjamin’s chief economic advisor, Avi Simhon, who believes that intervention is equivalent to a protective tariff that leads to increased prices for consumers by deterring import competition. According to the report, Simhon argued that only exporters are harmed by an appreciating shekel and they would be able to absorb a 10 percent appreciation of the currency.
A spokesman for the BOI said on Monday, "The Bank of Israel's position ... has not changed. The hardship facing Israel's exports industries cannot be ignored, especially given its importance to growth and productivity in Israel."
Karnit Flug, Governor of the Bank of Israel, told reporters last week that intervention was an "integral part of monetary policy" since it has prevented further appreciation. She noted that most central banks are adopting very accommodative policies that are acting to weaken their currency.