The Bank of Israel will purchase foreign exchange in order to offset the effect of natural gas production on the exchange rate

13/05/2013

Forex purchase vs gas 2013.docxThis press release as a Word document

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Natural gas production in Israel is causing an improvement in the current account, which is leading to appreciation pressures on the shekel. This phenomenon, often referred to as “Dutch disease” is liable to negatively impact Israel’s economy.
  • The Monetary Committee of the Bank of Israel announces a foreign exchange purchase plan which will offset the effect of the natural gas production on the exchange rate.
  • Beginning in 2013, and in following years, the Bank of Israel will purchase foreign exchange in line with the Bank’s assessment of the effect of the natural gas production on the balance of payments: In 2013, the improvement in the current account is estimated to be about $2.8 billion. Taking into account the effects on the financial account resulting from the natural gas production (foreign exchange payments by the gas companies), the Bank of Israel will purchase about $2.1 billion by the end of the year within the framework of this plan. This program will be revisited when a “wealth fund” begins operation, which is expected to be during 2018.
  • The Bank’s assessments of the overall effect on the balance of payments resulting from natural gas production and foreign exchange purchases will be updated from time to time and publicized.
  • The amounts which will be purchased within the framework of this plan will be added to the Bank of Israel’s foreign exchange reserves, but will be managed separately, with a longer term investment horizon.
  • The foreign exchange purchase plan serves as an additional instrument of the Bank of Israel’s exchange rate policy. As in the past, the Bank of Israel will continue to operate in the foreign exchange market in cases of exchange rate fluctuations which are not in line with fundamental economic conditions, or when conditions in the foreign exchange market are disorderly.
 

 

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