In first since 2022, Bank of Israel buys foreign currency to stem sharp shekel gain

The Bank of Israel intervened in the foreign exchange market for the first time since 2022, purchasing $801 million in foreign currency in May. The central bank stated the intervention aimed to maintain the "orderly functioning of the markets." This move comes after significant criticism from business leaders and policymakers who argued that the shekel's rapid strengthening was damaging exports, a key driver of the Israeli economy. The shekel had reached a 33-year high against the dollar, forcing exporters and startups to consider difficult decisions, including moving research and development centers abroad and impacting future economic growth. "Despite the central bank’s adamant policy until now, the Bank of Israel is showing some flexibility to stem the appreciation of the shekel," noted Jonathan Katz, chief economist at Leader Capital Markets. He suggested this action could signal more foreign exchange purchases in the future. Market observers estimate the intervention occurred in late May when the shekel briefly dipped below NIS 2.80 per dollar. The intervention appears to have had an immediate effect, weakening the shekel by 4.6 percent against the dollar in the week following the purchases. As of Friday, the local currency was trading around NIS 2.94 per dollar. Analysts anticipate the Bank of Israel may continue its foreign exchange purchases if the shekel continues to strengthen, especially given recent declines in inflation expectations. Exporters have voiced concerns that Governor Amir Yaron has done too little to moderate the shekel's approximately 20 percent gain against the dollar over the past year. They warn that a persistently strong currency could significantly harm the high-tech industry and exports, ultimately impacting employment and tax revenues, leading to a weaker shekel for negative reasons.

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Despite the central bank’s adamant policy until now, the Bank of Israel is showing some flexibility to stem the appreciation of the shekel.