Transactions in the financial account and the NIS/FX MARKET: march 2002


Transactions in the financial account and the NIS/FX MARKET:
main developments in march 2002

A. Transactions on the financial account

Nonresidents’ investment in Israel in March 2002 amounted to $ 480 million, mainly as a result of the rise in foreign-currency deposits in Israeli banks by both foreign banks and nonresidents (individuals and firms), $ 245 million of it from bonds issued by an Israeli bank via a foreign subsidiary. Direct investment this month amounted to $ 121 million, $ 50 million of it in two companies.

Residents’ investment abroad amounted to $ 690 million in March, $ 183 million of it in the negotiable securities portfolio, primarily investment abroad by mutual funds and insurance companies. Direct investment abroad was $ 145 million, $ 55 million of it by three companies, and other investment amounted to $ 280 million-due to an increase in deposits in Israeli banks abroad arising from the aforementioned bond issue.

B. NIS/FX market

On the basis of data accumulated to date it would seem that the effect on the NIS/FX market of the sharp interest-rate cut at the end of December, expressed in accelerated depreciation due to the over-reaction of the household sector, was checked in mid-February. Since then this sector has sharply reduced its demand for foreign currency, expressed in the negligible rise in participation in mutual funds specializing in foreign currency in Israel and in deposits and savings schemes indexed to foreign currency. Nonetheless, in February and March activity by individuals and institutional investors continued at a low level, with individuals joining funds abroad and transferring money to deposits abroad, and institutional investors continuing to invest in foreign securities. Some of this activity can apparently be ascribed to the increased economic uncertainty.

The exchange rate

As in February, local-currency depreciation continued at a moderate rate in March, reaching about 1 percent against the currency basket, after accelerated depreciation from the end of December and throughout January. The implied volatility of NIS/$ options, which reached a peak of 9.3 percent in February, declined to an average of 8.7 percent in March. Appreciation accelerated in April in view of the security situation.

The sectors

In March 2002 demand by individuals (households) continued to moderate. Accrual in the mutual funds specializing in foreign currency in Israel and abroad amounted to $ 190 million this month, $ 150 million of it in foreign funds. Accrual in foreign-currency-indexed savings schemes ceased almost entirely. Nevertheless, net transfers by individuals to deposits in banks abroad via the banking system continued to rise, and amounted to $ 130 million, further to the $ 110 million increase in February.

The business sector sold foreign currency this month, primarily by extensive forward transactions. Note that in March this sector repaid net bank credit of $ 190 million, compared with net credit of $ 436 million taken in February. The repayments in March were concentrated in a small number of firms. The by-industry distribution of foreign-currency credit indicates that in real estate net credit repayment continued to a small extent. Since the beginning of the year these repayments have amounted to $ 145 million.

Institutional investors: insurance firms and provident and further education funds invested in foreign securities, and this amounted to $ 90 million in February-$ 60 million of it by insurance firms.


This month, too, the net activity of nonresidents was not substantial. Their foreign-currency purchases in the amount of $ 114 million, mainly through forward transactions, were partly offset by investment of $ 53 million in shares.