Oren Against the Bank of Israel: Daily Forex Purchases Cannot Continue

"The Bank of Israel must stop buying foreign currency on a regular daily basis and intervene in the market only when necessary, in amounts and at times not set in advance," the Finance Ministry's accountant general Yehoshua (Shuky) Oren said yesterday .

"Foreign currency reserves that have grown by $20 billion expose Israel to dangerous movements in foreign currency exchange rates," Oren told a Kibbutz Movement conference on dealing with the economic crisis.

He added that the central bank's forex purchases have turned into the dominant factor in the market and are too transparent, and investors and traders are taking the bank's purchases into account.

The Bank of Israel declined to comment on Oren's remarks.

The Bank of Israel buys $100 million a day in foreign currency on the open market, and $50 million on Fridays. The bank started buying dollars in June 2008 in order to weaken the shekel against the dollar after the exchange rate had fallen to NIS 3.2 to the dollar - which caused exporters significant damage.

Officials at the Bank of Israel have been searching for an exit strategy from the forex purchases over the past few months. A senior central bank official said yesterday that the bank also thinks it is time to end the purchases, and the question is only when and how.

The official noted that the bank started its forex buying when the economic situation was quite bad, and without the purchases today's situation would have been much worse. Israel's foreign currency reserves hit $50 billion in June, and the treasury is worried the central bank will suffer a large loss from its large dollar holdings, and this could also affect the potential profits the Bank of Israel might earn - and the funds it should transfer to the treasury.