Israel’s Flug Says Currency Market Overshot on Gas Ouput

The reaction of the currency market to the start of Israeli natural-gas production was excessive, the country’s central bank governor-designate said.

“There was an overshooting in the foreign currency market,” Karnit Flug said in remarks broadcast to the Israel Democracy Institute conference in Eilat today. Production at the offshore Tamar gas field began in March.

Finance Minister Yair Lapid said Oct. 24 he will work with Flug to combat the shekel’s gains, which are making it more difficult for Israeli exporters to compete in global markets. The Israeli currency has gained about 10 percent in the past year, and was the best performer among the 31 major currencies tracked by Bloomberg.

The Bank of Israel has said it will buy $2.1 billion this year and $3.5 billion in 2014 to offset the effect of the natural gas. It has also made additional currency purchases, over and above the offset. Flug said that when global conditions normalize, there will be less need for currency purchases.

“If there is a temporary period in which appreciation pressures are particularly strong, if we can ease the pressures, this helps exporters weather the period,” Flug said. “When global conditions normalize, there will be less need for this kind of intervention.”

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