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Fischer Says Bank of Israel Aims to `Moderate the Movements' of Shekel
The Bank of Israel’s foreign currency purchases are aimed at influencing the shekel exchange rate to help exports rather than trying to keep the shekel at a specific level, Governor Stanley Fischer said today.
“We are trying to moderate the movements” of the shekel exchange rate, Fischer said in a speech at the Israel Export & International Cooperation Institute’s annual conference in Tel Aviv today. “Central banks that lose are those who say, ‘This is a red line and we won’t allow the rate to cross it,’” he said. “The minute they say that, you can be sure they are inviting an attack on their policy that in the end they cannot win.”
Fischer has been buying foreign currency since March 2008 in an attempt to stave off shekel gains, which undermine an economy reliant on exports. The central bank has more than doubled foreign currency reserves since then to $64.3 billion.
The Israeli economy’s rebound from the global financial crisis has been powered by exports, which make up almost half of gross domestic product. Sales abroad, excluding ships, aircraft and polished diamonds, increased in July to $3.8 billion, the most in two years, the statistics bureau said on Aug. 12.
Fischer said that a 10 percent appreciation of the shekel leads to a 2 percent drop in exports, reducing economic growth.
‘Policy of Intervention’
Changes in the Bank of Israel’s foreign currency purchase policy in 2008 and 2009 helped weaken the shekel, according to a central bank study released today.
“It was found that the changes in the Bank of Israel’s policy of intervention in the foreign currency market in March 2008, July 2008 and August 2009 resulted in shekel depreciation,” the central bank said in an e-mailed statement. The statement contained a summary of a study by Avihay Sorezcky of the Bank of Israel’s research department.
The shekel has weakened by about 10 percent against the dollar since March 2008. The Israeli currency gained 0.2 percent to close at 3.7754 shekel against the dollar in Tel Aviv on Sept. 3, the last day it traded.
Exports rose by almost 16 percent in the second quarter, after rising by close to 6 percent in the previous three months, the Central Bureau of Statistics said.
The Bank of Israel is likely to raise its growth forecast of 3.7 percent for this year after the pace of economic expansion picked up in the second quarter and unemployment fell, Fischer said on Sept. 1. Economic growth accelerated to an annualized 4.7 percent in the second quarter, the fastest in more than two years, while unemployment in the same period fell to 6.2 percent, close to its level before the global recession.
The rebound in the economy has prompted Israel’s benchmark TA-25 stock index to gain over 20 percent in the past year, led by Avner Oil & Gas Ltd. and Delek Drilling LP, two of the partners in the Tamar and Leviathan gas fields off Israel’s coast.
To contact the reporter on this story: Alisa Odenheimer in Jerusalem at aodenheimer@bloomberg.net.
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