The Bank of Israel will sell $30 billion in foreign exchange as the shekel declines. To maintain the shekel’s stability during Israel’s conflict with Hamas in the Gaza Strip, the Bank of Israel predicts selling up to $30 billion worth of foreign currency on the open market.
The initial foreign exchange sale by the central bank on Monday promptly reinstated stability in the market, as the shekel rebounded from significant initial declines on the same day.
The central bank issued the following statement: “Throughout the upcoming period, the bank will engage in market operations to provide the essential liquidity required to ensure the continued proper operation of the markets and moderate volatility in the shekel exchange rate.”
It stated that it would provide up to $15 billion in market liquidity via SWAP mechanisms, which involve the exchange of the values or revenue flows of one asset for another via a derivative contract.
“The Bank of Israel will continue to track all markets and monitor developments as needed, taking appropriate action with the tools at its disposal,” the statement continued.
Before the declaration, the shekel had depreciated by over 2 percent, reaching a nearly eight-year-old level at 3.92 per dollar. On Monday morning, the shekel rebounded to 3.86 per dollar, a decrease of 0.6 percent.
Prices of Israeli stocks and bonds
Thus far in 2023, the shekel has depreciated by ten percent against the dollar, primarily attributable to the Israeli government’s endeavor to reform the judiciary.
On Sunday, Israeli stock and bond prices declined by 7 percent. At the same time, many businesses remained closed in the wake of a multifront assault on Israel by Hamas militants that occurred the day before. The attack claimed the lives of at least 800 Israelis and abducted dozens more in what was the deadliest incursion into Israeli territory in decades.
Israel has accrued over $200 billion in foreign exchange reserves, most of which have been acquired since 2008 to prevent the shekel from appreciating excessively and harming exporters.
The bank’s most recent intervention occurred in January 2022. In his statement to Reuters last month, Bank of Israel Governor Amir Yaron stated that although the severe depreciation of the shekel contributed to an increase in inflation, intervention was unnecessary due to the absence of market failures.
According to authorities, on Monday, hostilities in Israel and Gaza entered their third day, with at least 560 Palestinians reported dead.