The Bank of Israel shocked foreign currency markets into an about-face at 2:30 P.M. Thursday, moments after it announced it would be increasing its daily dollar purchases to $100 million a day, up from $25 million.

The dollar rose 5% against the shekel within minutes of the announcement. Meanwhile, the central bank bought $100 million Thursday.

Before the surprise announcement, the dollar was falling sharply against the shekel and had lost 0.9% to NIS 3.201, its lowest level in 12 years. Within a minute of the announcement it was up 5 agorot, and continued rising. Yesterday's representative rate was finally set at NIS 3.314, up 2.6% from the previous day.

Later, in interbank trading, the dollar continued its rise, reaching NIS 3.365, another 2.4% gain.

The euro also climbed against the shekel by 2.6%, to a representative rate of NIS 5.206. The dollar was up 0.1% against the euro in world trading yesterday.

The heavy pressure on governor Stanley Fischer to intervene in foreign currency trading came from both economic and political circles.

Fischer informed Prime Minister Ehud Olmert and Finance Minister Roni Bar-On of his decision shortly before announcing it officially. Both gave the move their blessing.

In any case, the official explanation was that the central bank was increasing its foreign reserves, as it had previously announced.

The actual short, terse official announcement stated: "The Bank of Israel announced that as of today, it will increase the average daily rate of foreign currency purchases to $100 million - as part of the program announced on March 20, 2008 to increase the level of foreign exchange reserves to $35-40 billion. The Bank of Israel explained that the decision to increase the pace of purchases was taken in light of current market conditions, and the cumulative and rapid change in the exchange rate of the shekel. The Bank of Israel will continue to review the program from time to time to take into account changing market conditions."

Fischer had spent last week overseas on vacation and only returned to Israel early yesterday morning. A few hours later, he gathered the bank's senior management for a meeting in Tel Aviv to discuss how to halt the shekel's continued rise, and the damage it was causing.

The forum decided not to wait any longer, and to act now.