Bank of Israel Report on Investment of Foreign Exchange Reserves Published Today

14.5.2006
 
Bank of Israel Report on Investment of Foreign Exchange Reserves Published Today
Average level of the Bank of Israel's foreign exchange reserves in 2005 was about $27 billion.
 
For the full Report - Click here
 
The Bank of Israel’s Foreign Currency Department today issued its Annual Report, which analyses the investment of the Bank’s foreign exchange reserves.
Highlights of the report:
  The average level of the Bank of Israel's foreign exchange reserves in 2005 was about $27 billion, equal to some five months' worth of imports, and constituting about 82 percent of Israel's short-term foreign debt.
  There was no change to the framework of the management of the reserves in 2005, which was based on the possible uses of the reserves and their benefit to the economy. The management framework will be reviewed again in 2006.
  The holding period rate of return on the reserves in 2005 was 2.6 percent, up from 1.7 percent in 2004. The return reflected the rise in yields to maturity in the capital markets in which the reserves were invested during the year, which led to rising interest income accompanied by capital losses.
  In 2005 the holding period rate of return was 21 basis points higher than that of the neutral benchmark, a spread that reflects the contribution of active management of the portfolio. As in previous years, most of the incremental yield derived from asset selection.
  The information ratio in 2005, more than 1.0, indicates a desirable yield/risk ratio.
  The exposure of the reserves to the banking system was on average 31 percent of the reserves. This exposure is managed under a system of quotas and rules, which plays a central role in credit-risk management of the portfolio.
  The reserves have a very high liquidity: about 84 percent of the portfolio is invested in liquid assets and the rest in assets with lower liquidity.
For the years 2000-2004, this report was published as a chapter of the Bank’s Annual Report. However, this year the format of the Bank’s Annual Report was changed, so this report is now being issued separately. In contrast to prior years, this report does not discuss developments in the NIS-Forex market, as that subject is covered by the Bank of Israel’s 2005 Annual Report, which was issued on April 2, 2006. Also, this year the Department’s report is being published solely via the Bank’s website, as a cost-saving measure.