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The Bank of Israel has slashed its issuance of makams, the short-term treasury bills it issues, in order to discourage speculation on the shekel.

Issuance is down to a third of the usual volume - about NIS 1 billion a month instead of roughly NIS 3 billion.

Most of the reduction is in three-month notes, which is a convenient place for speculators to park shekels they buy. Creating a shortage of three-month makams makes them more expensive and less attractive for speculative purposes.

Gambling on the shekel is believed to be contributing to the shekel's might against its main trading partners, chiefly the dollar. One reason is that at 2%, Israeli central bank interest is high relative to that of other developed economies.

The three-month central bank notes have also been used by overseas investors as the basis of shekel-dollar swap transactions, which gain them the higher interest on the shekel without actually having to buy shekels.

On Tuesday, the Thai government slapped a tax on nonresident purchases of Thai bonds to halt the surge of the baht. That approach is being rejected out of hand by the Bank of Israel as being too drastic. Any measures that discriminate against foreign investors could hurt Israel's international standing and its relations with the International Monetary Fund, central bank officials said.

Officials said they might be ready to consider nondiscriminatory extraordinary measures, such as taxing speculative foreign currency transactions, to head off a further appreciation by the shekel.

But sources at both the central bank and the Finance Ministry admitted such a policy would be almost impossible to implement, because of the difficulty in distinguishing between short-term currency speculation and the longer-term foreign currency trade that is essential to sustain exports.

So for now, instead of administrative steps, the Bank of Israel is doing battle on the capital markets against currency speculators from abroad.