Bank of Israel Buys $250 mil in Forex

Published: September 28th 2010
in Economics » Israel

Stanley Fischer, governor of the Bank of Israel

The Bank of Israel bought an estimated $250 million worth of foreign currency on Tuesday, ynet reported, in an attempt to weaken the shekel after Monday’s hike in interest rates.


"They want to stop the drop in dollar-shekel," said a dealer at a large Israeli bank.


The shekel weakened to 3.6830 per dollar after the fact, as a result of the intervention, from its official rate of 3.6770, which is the strongest it’s been since January 13.


According to ynet, the Bank of Israel raised its interest rate for October by a quarter-point to 2% on Monday, its sixth rise since August 2009. That sent the shekel to 3.6650 per dollar.


The move has, nevertheless, been expected for a while now. According to Haaretz, Bank of Israel Governor Stanley Fischer has been more concerned about housing prices than the rise in the shekel's strength against other currencies. As well, Fischer's stated goal of restoring interest rates to "normal" levels was cited as a precursor.


The bank's mandate is to keep inflation within the government's 1%-3% target.


The consumer price index rose by 0.5% in August, while analysts had predicted an increase of zero to 0.3%. Fischer cited housing as one of the culprits.


"Prices rose most notably in three areas: fresh vegetables, because the intense summer heat damaged crops, and also for regular seasonal reasons; foodstuffs, and housing," wrote Ayelet Nir, the chief economist at the IBI Investment House, in a weekly macroeconomics review.


Low interest rates are considered to stimulate economic activity by making borrowing cheaper, although Israel's economy is already growing at a fairly rapid pace.

Related articles: (currency, Stanley Fischer, forex, rate hike)
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