Bank of Israel Governor Stanley Fischer announced Monday night he is buying another $100 million worth of dollars to prop up the shekel-dollar rate, which dipped below the 3.74 level earlier on Monday for the first time in a year. Traders immediately reacted by selling shekels, and the rate by Tuesday morning soared to near the 3.86 level.
The Bank of Israel explained that instead of regular purchases of the greenback, which the Bank has been buying on a regular basis since the rate plummeted to 3.25 two years ago, it will buy dollars from time to time. It explained the purchases will take place “when there are extraordinary movements in the exchange rate....”
The latest move came less than a day after Fischer consulted with Finance Minister Yuval Steinitz on how to combat the strong shekel, which damages exports and profits to exporters, who receive fewer shekels for dollars when the rate is low.
However, analysts are skeptical that the purchase of dollars will have any long-term effect. Both Chaim Ben Dor, analyst for Voice of Israel government radio, and Clal investments analyst Tal Avda said that it will be difficult to prop up the shekel forever, particularly in the face of expectations that the American dollar will weaken further on the world market.
Even Fischer has previously gone on record as opposing central bank intervention, which often provides speculators with the appetite to try to flood local markets with the local currency and cause a collapse of the bank’s strategy.