The Central Bank has portrayed the move as an integral part of its monetary policy.
With the shekel continuing to strengthen for a fifth day in a row, Israel’s central bank, the Bank of Israel, has engaged in buying “hundreds of millions” of dollars’ worth of foreign currency, according to dealers.
According to one, the central bank started purchasing dollars when the dollar-shekel exchange rate was hovering around 3.84. The exchange rate had quickly climbed to 3.85 before touching 3.90.
The shekel’s upward climb has come in the wake of Brexit.
The Bank of Israel declined to comment.
According to TheMarker, a financial newspaper, Israel’s central bank’s intervention policy came under fire from Avi Simhon, Israel’s chief economic advisor, who was quoted as saying that intervention was tantamount to a protective tariff that raises prices for consumers by deterring import competition.
According to TheMarker, this act harms not only suppresses the appreciation of the shekel but also harms exporters who’s earning could be boosted by 10% due to the currency’s appreciation.
A spokesman for the prime minister’s office could not immediately comment.
Since 2008, Israel’s central bank has been on a dollar purchase spree so as to boost its foreign currency reserves from $70 billion to $96.5 billion. This policy is aimed at protecting exporters, which makes up nearly 31% of its economic activity.
“The Bank of Israel’s position … has not changed,” said the central bank in a statement. “The hardship facing Israel’s exports industries cannot be ignored, especially given its importance to growth and productivity in Israel.”
It went on to add that the country’s policy decisions are formulated by the Monetary Policy Committee.
As per a forex dealer, it’s likely that the central bank intervened in order to ease market concerns about a change in policy.
Karnit Flug, the governor of Israel’s central bank, told reporters last week that intervention was an “integral part of monetary policy”. She further noted that many central banks are adopting policies, which can be construed as accommodative, as their actions are designed to weaken their currency.
“This situation may lead to an erosion of profitability among many businesses in Israel to an extent that will not allow them to survive this period,” said Flug.
Categories: Economy & Finance, Strategy, Uncategorized
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