The Monetary
Committee announces a change in the Bank’s foreign exchange market activity:
The Committee declares in advance a plan to purchase $30 billion over 2021
In 2021, the Bank of Israel will purchase $30 billion. The advance announcement
of the scope of the purchases is intended to provide the market with certainty
regarding the Bank’s commitment to dealing with the recent sharp appreciation, and
thus support the economy’s continued dealing with the economic ramifications of
the COVID-19 crisis.
In recent months, foreign currency flows into Israel’s economy have
intensified, against the background of the growth in the current account
surplus, direct investments, large scale foreign currency sales by
institutional investors against their investment profits in capital markets
abroad, and an increase in investments by nonresident investors in Israeli
government bonds, which is also an outcome of Israel’s being included in the WGBI
global bond index.
These factors contributed to a marked appreciation of the shekel, which
was also impacted by the weakening of the dollar worldwide against many other
currencies. Against this background, and in order to moderate the negative
effect of the shekel’s appreciation on Israeli economic activity during the
coronavirus crisis, the Bank of Israel increased the scope of intervention in
the foreign exchange market, and in 2020 bought a total of approximately $21
billion.
The Monetary Committee assesses that in order to support the achievement
of the Bank of Israel’s objectives and the recovery of the economy from the
coronavirus crisis, and in particular to support employment in export
industries and import substitute industries, continued foreign exchange market
intervention at a broad scope will be required in 2021.
After a series of discussions held over recent days, and in order to
increase the certainty regarding the Bank of Israel’s intervention in the
foreign exchange market in the coming year, the Monetary Committee decided to
change its foreign exchange market policy. The Committee announces that in 2021
the Bank of Israel will purchase $30 billion in the foreign exchange market. This
amount is markedly larger than the Bank’s intervention in the past and its assessments
regarding the expected current account surplus this year, so that it will also
moderate the forces for appreciation deriving from financial factors. The
purchases will continue so long as they do not lead to a depreciation at an
extent that is not consistent with the achievement
of the Bank’s price stability and financial stability objectives.
Toward the end of 2021, the Bank will announce its intervention policy
for 2022, in line with developments in the real economy and the labor market in
particular, in financial markets, and in the trend of inflation, and with
regard to assessments of the economy’s paths of exit from the coronavirus crisis
as they will have been formulated at that time.