The Bank of Israel plans to supply dollar liquidity to local lenders and sell foreign exchange for the first time since it allowed the shekel to trade freely as part of an unprecedented program to support markets following the surprise attack by Hamas militants.
(Bloomberg) — The Bank of Israel plans to supply dollar liquidity to local lenders and sell foreign exchange for the first time since it allowed the shekel to trade freely as part of an unprecedented program to support markets following the surprise attack by Hamas militants.
The central bank will sell as much as $30 billion and extend up to $15 billion through swap mechanisms, according to a statement on Monday. The goal of operating in the market during the coming period is to smooth out volatility in the shekel’s exchange rate and provide the necessary liquidity, it said.
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Israel’s currency briefly erased losses after sliding as much as 2% at the open. It traded 1.6% weaker at 3.9099 per dollar as of 9:34 a.m. local time.
The country’s benchmark TA-35 stock index had its biggest loss in more than three years on Sunday with a decline of 6.4%.
“In circumstances like this, maintaining stability is more important than levels,” said Geoffrey Yu, a currency and macro strategist at BNY Mellon in London. “In the short term, there will be some volatility in markets, but we expect this to be manageable. The liquidity support is expected and the Bank of Israel is very much experienced in such matters.”
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It’s the first intervention by the central bank in about two years and the first time ever it’s selling dollars. The decision to shore up the shekel follows the deadliest attack on Israel in decades, with Prime Minister Benjamin Netanyahu saying the war with Hamas militants in the Gaza Strip will be lengthy and “difficult.”
Policymakers have resisted supporting the shekel even as investor concerns surrounding the government’s controversial efforts to weaken the power of the judiciary weighed on the currency for months. The shekel is one of the biggest losers this year among a basket of 31 major currencies tracked by Bloomberg.
A program of currency interventions begun more than a decade ago by then-Governor Stanley Fischer to stem the surging shekel helped the central bank amass reserves that now surpass a third of gross domestic product. They stood at nearly $203 billion at the end of August.
(Updates with stocks in fourth paragraph, reserves in last.)
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