Foreign currency fluctuations and interest rate differentials caused the Bank of Israel to lose NIS 1.2 billion in 2012, according to its annual report published yesterday. That compares with a much bigger loss of NIS 3.4 billion in 2011.
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These losses are on paper only, though, and not real losses. By law, the central bank is required to transfer any profits it makes to the treasury, so what this means is that the treasury cannot rely on the central bank for any additional revenues. In the past 20 years, the central bank has accumulated losses of NIS 42.6 billion.
The main reason for these losses are fluctuations in the dollar-shekel exchange rate and the relatively high rate of interest the central bank pays on deposits it holds of local banks compared with the rate it receives on its reserves deposited abroad.
The report indicates that the central bank was able to narrow its losses last year thanks to higher financial revenues (without accounting for interest), which rose from NIS 0.7 billion in 2011 to NIS 3 billion in 2012. Interest-related expenditures were unchanged in 2012.
Bank officials said its 2012 results reflect its determination to pursue its stated objectives, as defined by the Bank of Israel Law -- achieving price stability, growth and support of financial stability, rather than attempting to create profits.
At the end of 2012, the central bank's assets totalled NIS 303 billion, down 1.6 percent from the previous year.