Bank of Israel Snaps Up Dollars in Bid to Weaken the Shekel

The central bank buys tens of millions of dollars; U.S. dollar dropped sharply against most major currencies as trading week opened.

The Bank of Israel on Tuesday again intervened in the foreign currency market in an effort to weaken the shekel, thereby making Israeli exports more competitive.

The central bank purchased tens of millions of dollars, strengthening the greenback after it slumped earlier in the day to NIS 3.6689 (as of press time, it was 3.6785). Meanwhile, the exchange rate for the euro was steadier, trading around 4.79.

According to staff in the research department of foreign currency trader FXCM Israel, the dollar's decline against the shekel reflects the American currency's overall global decline, and not necessarily the strength of the Israeli currency.

The U.S. dollar dropped sharply against most major currencies as the trading week opened, following the release of lackluster production figures in the United States on Monday.

Late last month, the Bank of Israel signaled it would continue efforts to weaken the shekel, cutting its base lending rate by a quarter of a percentage point for the second time in two weeks, to 1.25%.

The decision came as a surprise to the financial markets and economists, who had expected the central bank to keep the rate unchanged for June.

In explaining its move, the Bank of Israel cited the need to "weaken the forces for appreciation of the shekel." It noted that the past two months had seen many of the world's central banks lower rates.

"The expansionary policy of the central banks in major advanced economies is expected to continue in the coming year as well," the Bank of Israel said.

Bank of Israel Governor Stanley Fischer, who is scheduled to step down at the end of the month, has devoted his final days in office to stemming the appreciation of the shekel, out of concern that a strong shekel could damage the competitiveness of Israeli exports and have a detrimental effect on the economy.
 

Bloomberg and Tomer Apelbaum