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8.1.2007
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Summary of Israel's Foreign Exchange Activity in December 2006
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In December the shekel appreciated against the dollar and the currency basket by around 0.5 of a percent. The exchange rate behavior though was not uniform during the month; in the first half, the shekel continued to appreciate against the dollar and the currency basket––as it had done for most of the period since mid-July 2006––by 1.7 percent. In mid-December, the appreciation came to a halt, and after the decision to cut the interest rate by 50 basis points was published, the shekel depreciated by around 1 percent.
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Exchange-rate risk––as measured by the implied volatility of NIS/$ options––rose in December by around half a percentage point, to 6.1 percent.
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The Department of Foreign Exchange Activity of the Bank of Israel reports that nonresidents continued to invest in the economy in December; in Israeli shares, both directly and through portfolios, on the Tel Aviv Stock Exchange and in secondary markets abroad, as well as in government shekel bonds, as part of the reforms in market makers. It should be noted that nonresidents' investments in government bonds in Tel Aviv totaled a considerable amount during December of close to $ 1 billion, and since September, when the reforms began, the cumulative amount has reached around $ 2.2 billion. On the other hand, December also saw purchases of foreign currency through Forward contracts of around $ 500 million.
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The business sector bought foreign currency in December in considerable amounts, accumulating foreign currency deposits in banks, for paying off bank credit in foreign currency and for investment in foreign shares, both directly and through portfolios.
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Households continued to make redemptions of holdings in mutual funds indexed to the exchange rate, on a small scale.
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For the year 2006, the shekel strengthened considerably both against the dollar and against the currency basket by around 8 percent and 5 percent, respectively, though it weakened against the euro by around 2 percent.
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During the year, exchange-rate risk rose by around half a percentage point.
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The Bank of Israel adds that during the year 2006, according to initial estimates, nonresidents invested in the economy––both directly and through portfolios––a record amount of around $ 21 billion; $ 13.2 billion in direct investments, $ 8.2 billion in portfolio stocks and Israeli corporate bonds issued abroad and a further $ 2.2 billion in government shekel bonds in Tel Aviv, as stated above.
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During 2006, according to initial estimates, the business sector invested the considerable amount of around $ 21 billion abroad, part of which were parallel investments of nonresidents' investments in the economy. This amount includes direct investment of $ 12.3 billion, investment in bonds and foreign share portfolios of the amount of $ 5.7 billion, and an increase in deposits in banks abroad of a total $ 3.4 billion.
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Institutional investors too invested considerable amounts this year in foreign assets––$ 3.1 billion––of which $ 1.4 billion was in portfolio shares and some $ 1 billion in alternative investments.
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Households redeemed fx mutual funds to the amount of around $ 800 million. However their behavior during the year was not uniform: in January to April, households registered investments of $ 1.2 billion, most of it in foreign shares, and mainly in the emerging market economies. From then until the end of the year, households registered redemptions of around $ 2 billion.
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Main Indicators of Activity in the NIS/Forex Marketa forex sales (+), forex purchases (-) $ million
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2004
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2005
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2006
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December 2006
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1. Nonresidents
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Total direct and portfolio (shares and bonds) investmenta
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7,200
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9,947
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21,081
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1,348
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Portfolio investment in Israeli securities (bonds and shares) (+)
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5,443
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4,362
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7,898
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998
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Of which:In portfolio shares on the TASE (+)
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502
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2,139
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-143
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219
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In Israeli bonds on the TASE (+)
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45
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512
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2,226
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966
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Israeli issues abroad (bonds and shares)
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3,937
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1,286
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b 8,169
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-350
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Direct investment (+)
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1,757
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5,585
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13,183
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350
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Purchases of local-currency assets via derivatives (+)
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311
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–2,303
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960
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-532
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2. Business sector
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Direct investment (-)
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-4,450
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-2,428
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-12,261
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-424
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Portfolio investment in foreign securities (bonds and shares) (-)
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-2,560
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-6,503
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-5,691
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-127
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Accumulation in foreign-currency deposits (-)
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–2,025
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–3,339
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-5,006
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-550
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Net foreign-currency bank credit taken from banks in Israel (+)
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–1,012
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–3,613
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-1,801
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-410
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Forward forex purchases (-)
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-1,086
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2,036
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-2,350
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228
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3. Institutional investors (excl. mutual funds): investments in assets abroad (-)
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-906
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-2,922
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-3,100
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49
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4. Households
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Accumulation (-) in mutual funds specializing in forex
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-228
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-912
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812
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122
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Accumulation (-) in forex deposits in banks in Israel
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-662
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-1,427
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-1,585
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-198
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a
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Excluding government bonds floated abroad.
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b
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Mostly one particularly large deal.
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