Central Bank Not Alarmed by Dollar

The investment manager with the largest portfolio in Israel does not sit in the Tel Aviv financial district, but in an office in Jerusalem. He oversees over $45 billion, and he is named Barry Topf, the director of market operations at the Bank of Israel and a member of the bank's senior management.

Topf has worked at the central bank for 29 years and is in charge of its foreign currency and capital market dealings. He buys $100 million a day in foreign currency and NIS 200 million a day in government bonds. He is tasked with keeping an eye on Israeli capital markets and making sure they are functioning properly - and deciding where to invest the state's enormous foreign currency reserves.

Topf spoke to TheMarker, saying officials at the bank are not alarmed by the drop in the dollar. "The situation today is not the same as it was half a year ago. There is no market failure, no dysfunctional market or manipulation. Markets move up and down - look at what is happening to the dollar overseas against other currencies.

"This is new situation, maybe a turning point, possibly a passage from crisis to a new period. Like every turning point, the markets are responding with high volatility," he added.

As to the dollar's strengthening - despite the $100 million in daily foreign currency purchases - Topf said the laws of supply and demand apply to the forex market, that the Bank of Israel had bought over $19 billion since last summer, and that it is clear the bank has influenced the demand for dollars and therefore also their price. Otherwise Israel would have entered the economic crisis with an exchange rate of NIS 3.20 to the dollar, which would have been catastrophic.

Topf says the central bank will continue to buy dollars without any specific target. Originally, the bank had set a goal of reaching $36 billion in foreign reserves. It later upped the ante to $44 billion. "It turns out that large foreign currency reserves are the best thing that could have happened to Israel," Topf said, adding that the bank does not think present reserves are too high.

He said the Bank of Israel responded to the crisis in time and did not have to provide huge sums to Israeli banks as they did in Europe and the U.S.

The central bank has also bought some NIS 4 billion in government bonds so far. In the past the Bank of Israel said it would purchase between NIS 15-20 billion of such bonds; at the present rate it will take another four months to reach this amount. Topf says when this happens, the bank will announce whether it will continue the purchases, but adds that for now the target has remained unchanged.