Bank Of Israel: Israeli Shekel at almost 8-year low: Bank of Israel to sell $30 bn of forex to stabilise shekel amidst war

Israeli Shekel in free fall! The Bank of Israel has announced its intention to sell up to $30 billion of foreign currency in the open market. This move marks the central bank’s first-ever foreign exchange sale and is aimed at maintaining stability during the ongoing conflict with Palestinian militants in Gaza, according to a Reuters report.
Following this announcement, the Israeli shekel experienced a significant decline of 2.7% against the US dollar, reaching a rate of 3.945. This level represents its lowest value since early 2016, the report said.
Golan Benita, head of the Bank of Israel’s markets department, explained the rationale behind this decision, citing the exceptional security situation. He noted concerns that the market could experience significant volatility without such intervention. “We are in an unprecedented security situation, and our estimate was that the market could get to a situation of divergence without the announcement of our intervention,” he was quoted as saying.
The shekel had already weakened by 10% in 2023 due to political instability. Given the expected duration of the conflict with Hamas in Gaza, further depreciation of the shekel was anticipated.

Benita highlighted that before the local market opened, the exchange rate had surged to as much as 4.3 shekels per dollar overnight in Asia. Therefore, the bank aimed to reduce market uncertainty and potential overreactions, ensuring regular market activity.
Benita emphasized that there are no current plans to exceed the $30 billion forex sale, citing the substantial level of reserves that provide room for economic support during emergencies.
HSBC’s Neil Churchill commented, “At the current juncture, the central bank’s priority is only to ensure a normal functioning of markets.”
Additionally, the central bank announced its intent to provide liquidity through swap mechanisms in the market, with a commitment of up to $15 billion.
The Bank of Israel affirmed its readiness to monitor developments across all markets and deploy available tools as necessary to address the evolving situation.
Citi economists noted their expectation of a weaker shekel in the medium term but did not anticipate sustained periods of shekel weakness.
Israeli stock and bond markets faced a 7% decline on the previous day, following a deadly incursion by Hamas gunmen from Gaza. However, on Monday, key Tel Aviv share indices rebounded, showing a 1% increase in afternoon trading, while government bond prices displayed mixed trends.
Notably, Israel’s dollar-denominated government bonds witnessed a sharp decline in early European trading, as investors responded to the unprecedented attack. Most bonds experienced drops ranging from 1.5 to 4 cents, with the 100-year bond maturing in 2120 facing one of its largest daily declines, falling to just 65 cents.
Israel has amassed significant forex reserves, exceeding $200 billion, equivalent to nearly 40% of its GDP. This accumulation, which began in 2008, aimed to prevent the shekel from appreciating too sharply and affecting exporters, particularly in the tech sector.
HSBC’s Churchill highlighted Israel’s robust position in emerging markets, noting that its reserves are substantial and meet various metrics comfortably.
It’s worth noting that the Bank of Israel’s last intervention was in January 2022. Last month, Bank of Israel Governor Amir Yaron expressed that, despite the weaker shekel and resulting inflation, there was no immediate need for intervention due to the absence of market failures.
In a display of market confidence, Israel sold 2 billion shekels ($508 million) of bonds locally on Monday, even in the midst of these challenging times.