Oct. 9 (UPI) — Israel’s central bank said Monday that it is prepared to sell as much as $30 billion of its $200 billion foreign currency reserves to shore up the Israeli shekel which has plummeted in value since it was attacked by Hamas at the weekend.
The market intervention would continue for the foreseeable future “in order to moderate volatility in the shekel exchange rate and to provide the necessary liquidity for the continued proper functioning of the markets,” the Bank of Israel said in a news release.
The bank also pledged to boost market liquidity through SWAP mechanisms to the tune of up to $15 billion.
“The Bank of Israel will continue monitoring developments, tracking all the markets, and acting with the tools available to it as necessary,” added BOI.
ILS fell as low as 3.93 to the dollar, down 2%, early Monday before recovering very slightly, but remains at its weakest level in seven years following a sell-off last week even before Hamas attacked.
The shekel has been depreciating since the beginning of the year, losing almost 10% of its value, as Israel has been plunged into uncertainty and division over a controversial reform of the power of the judiciary, raising the specter of a constitutional crisis
Israel’s $33 billion annual trade deficit with the world has helped keep inflation higher as the price of imported goods increases in inverse proportion to the value of the shekel.
“The Israel currency will be a bit devalued because both Israelis and foreigners are going to reduce their exposure to Israel as the risk of Israel as an economy goes up,” Former BOI deputy governor Zvi Eckstein told CNBC.
“The Israeli economy is very strong. Unless there [is] an Iranian physical attack, it’s very likely that Israel will get back to fully functioning economically within a week or two,” he said.
The announcement constitutes the bank signaling not necessarily that it is going to sell the $30 billion foreign exchange holdings, but that it has the resources and intention to act to protect the shekel.
“This a plan and it doesn’t mean that the central bank will use the full amount of the program,” IBI Investment House chief economist Rafi Gozlan told The Times of Israel.
“We are going to see a weaker shekel due to the war situation and the central bank program is intended to prevent high volatility of the shekel exchange rate and support the functioning of the financial market,” said Gozlan.
When the Bank of Israel last intervened in 2021 it dumped shekels for dollars in an effort to halt a sharp appreciation of ILS.