The Bank of Israel might resume its policy of intervening in the foreign currency market to prevent a further strengthening of the shekel, which is up more than 4% against the dollar this year, the minutes of a meeting of the bank's Monetary Committee show.
“Since the beginning of the year, the shekel has strengthened by about 4.5% in terms of the nominal effective exchange rate,” said the minutes, which were released Thursday.
“The committee believes that if the appreciation continues, it is liable to make the inflation rate’s return toward the midpoint of the target more difficult, and if necessary, the Bank of Israel will consider using the tool of intervention in the foreign exchange market.”
The minutes reflect discussions the committee held on April 7 and 8, before a decision to hold the base lending rate at 0.25%.
Since January 2018, the central bank has refrained from buying dollars to prevent the shekel from appreciating and hurting Israel’s key export sector. At the end of the year, it also stopped buying dollars to offset the effect of natural gas; Israel's natural gas had been strengthening the shekel by reducing the country’s energy-import costs.
The governor of the Bank of Israel, Amir Yaron, said when he took office in December that he preferred “market forces” to determine the exchange rate.
But so far this year, the dollar has fallen 4.2% against the shekel. On Thursday, however, it rose nearly 0.4% to a representative rate of 3.5896 shekels. Inflation moved higher in March but the 12-month rate of 1.4% is barely inside the government’s target range of 1% to 3% annually.