Bank of Israel to Invest More Foreign Reserves in Shares

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Bank of Israel Governor Karnit Flug.Credit: Olivier Fitoussi

The Bank of Israel said on Sunday it planned to increase to equity holdings in its foreign currency reserves to as much as 8% in 2014, while starting to invest in corporate bonds as its seeks to return a higher return.

The central bank in 2013 increased its equity allocation to 6% from 3% and was expanded to shares traded in Germany, France and Britain. Israel's foreign exchange reserves ended 2013 at $81.8 billion, a rise of $6 billion from 2012. Reserves reached a record $84 billion in February.

Some $3.2 billion of the purchases last year were within the framework of the Bank of Israel's intervention "intended to moderate exchange rate volatility which is not in line with fundamental economic conditions in Israel," it said.

Another $2.1 billion were purchased as part of a plan that began in May 2013 to moderate the effect of natural gas production on the exchange rate.

The central bank noted that it changed its risk profile to allow for absorbing more loss without negatively impacting the achievement of the goals for which the reserves are held.

"The change in the risk profile was made possible by the increase in the level of the reserves and the integration of foreign exchange purchases within the framework of the natural gas program, which are characterized by a longer term investment horizon," it said.

The central bank aims to buy another $3.5 billion in 2014 as part of its natural gas offset program.

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