Bank of Israel Governor Prof. Amir Yaron has blamed speculators for the strength of the shekel. Speaking yesterday at a press conference after the Bank of Israel Monetary Committee announced that the interest rate would remain unchanged at 0.25%, he explained why the Bank of Israel had greatly increased purchases of foreign currency in the past few months.
He said, "Throughout most of 2019, the strengthening of the shekel was striking compared to other currencies, and in our assessment, the shekel strengthened beyond what would have been expected as a result of the economy’s good macroeconomic fundamentals."
He continued, "As a result, the exchange rate deviated from the window that is in line with continued solid economic activity and price stability. The transaction data that the Bank of Israel collects indicate that the appreciation was partly the result of short-term financial factors, which were liable to adversely impact economic activity and the return of inflation to within the target range."
Prof. Yaron added, "I emphasize that the Bank of Israel is prepared to prevent excessive appreciation of the shekel, by purchasing foreign exchange whenever necessary, and particularly to the extent that we assess that the appreciation is the result of relatively short-term financial factors. Decisions on the extent of intervention are reached in accordance with assessments regarding the development of the exchange rate and its effect on the macroeconomic variables."
The Bank of Israel purchased nearly $4 billion in foreign currency in the final quarter of 2019 including over $2 billion in December.
In keeping the interest rate unchanged, the Bank of Israel's Research Department cut the 2020 growth forecast from 3.2% to 2.9% and said that there might be the need to cut the rate during 2020.
Published by Globes, Israel business news - en.globes.co.il - on January 10, 2020
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