The Bank of Israel says it will sell up to $30bn of foreign currency in the open market to maintain stability of the shekel during Israel’s war with Hamas in the Gaza Strip.
Monday’s announcement, the central bank’s first ever sale of foreign exchange, appeared to quickly restore calm in the market as the shekel recovered from steep early losses on Monday.
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“The bank will operate in the market during the coming period 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 central bank said in a statement.
It said it would provide liquidity in the market of up to $15bn through SWAP mechanisms, a derivative contract in which one party swaps the cash flows or value of one asset for another.
“The Bank of Israel will continue monitoring developments, tracking all the markets, and acting with the tools available to it as necessary,” it said.
Ahead of the announcement, the shekel had weakened by more than 2 percent to a near-eight-year low of 3.92 per dollar. The shekel early on Monday recovered to 3.86 per dollar, down 0.6 percent.
Israeli stock and bond prices
The shekel had already been down 10 percent against the dollar so far in 2023, largely due to a bid by the Israeli government to overhaul the judiciary.
Israeli stock and bond prices on Sunday slid 7 percent while many businesses were closed after Hamas gunmen the previous day launched a multifront attack on Israel, killing at least 800 Israelis and abducting dozens more in the deadliest incursion into Israeli territory in decades.
Israel has amassed forex reserves of more than $200bn, much of it from buying forex since 2008 to try to keep the shekel from strengthening too much and hurting exporters.
The last time the bank intervened was in January 2022.
Last month, Bank of Israel Governor Amir Yaron told the Reuters news agency that despite the sharply weaker shekel helping to push up inflation, there was no need to intervene because there were no market failures.
Fighting in Israel and Gaza continued into a third day on Monday with authorities reporting the deaths of at least 560 Palestinians.
Source: Al Jazeera and news agencies