13.3.2007
 
Summary of Israel's Foreign Exchange Activity in February 2007
 
In the first three weeks of February, until close to the publication of the Bank of Israel decision to lower the interest rate on 22 February, the shekel strengthened against the dollar by 1.8 percent, and by 0.8 percent against the euro. From then till 6 March the shekel weakened against the dollar by 0.9 percent, and by 1.1 percent against the euro.
Exchange-rate risk––as measured by the implied volatility of NIS/$ options––fell slightly in February, by 0.3 percentage points, to 5.5 percent. In the last two days of February and in the first days of March exchange-rate risk showed a small rise to 6.1 percent, against the background of the negative global trend.
The Department of Foreign Exchange Activity of the Bank of Israel reports that in February nonresidents and residents acted in opposite directions, in substantial but similar amounts.
Nonresidents’ activity focused in areas less sensitive to interest rate differentials, i.e., investment in Israeli, mainly portfolio, shares and in direct investment. Two issues abroad by Israeli companies, together totaling half a billion dollars, and the purchase of the shares of the Oil Refineries (“Bazan”) totaling about $ 400 million, in the context of its privatization, attracted most attention. In the last days of February, against the background of events in the world markets, nonresidents sold modest quantities of shares, but this trend did not gain strength in the beginning of March.
The business sector, in contrast, used instruments sensitive to interest rate differentials, mainly derivatives, to buy foreign currency. This sector also accumulated foreign currency deposits in the banks, and there was also a modest degree of repayment of foreign currency bank credit.
The rising trend of institutional investors' investment in foreign assets, which had restarted in the second half of 2006, continued in February.
Households continued to make moderate redemptions of holdings in mutual funds indexed to the exchange rate. At the same time, they added considerable amounts to their holdings in mutual funds investing mainly in corporate bonds in Israel. In the first few days of March households sold relatively modest quantities of mutual funds that invest abroad.
 
Main Indicators of Activity in the NIS/Forex Market forex sales (+), forex purchases (-) $ million
  2004 2005 2006b Jan–Feb 2007 February 2007a
1. Nonresidents
Total direct and portfolio (shares and bonds) investmentc 7,527 8,962 22,417 2,666 1,226
Portfolio investment in Israeli securities (bonds and shares) (+) 5,443 4,205 8,263 1,580 775
Of which:In portfolio shares on the TASE (+) 502 2,139 -141 939 477
In Israeli bonds on the TASE (+) 45 512 2,235 -101 -290
Israeli issues abroad (bonds and shares) 3,937 1,096 8,309 512 491
Direct investment (+) 2,084 4,757 14,154 1,086 451
Purchases of local-currency assets via derivatives (+) 311 -2,303 1,158 -839 -280
2. Business sector
Direct investments abroad (-) -4,450 -3,261 -12,553 -337 -244
Investments in portfolio bonds and shares (-) -2,560 -6,500 -7,458 -1,149 -750
Accumulation in foreign-currency deposits (-) -2,004 -3,540 -3,999 -790 -644
Net foreign-currency bank credit taken from banks in Israel (+) -1,012 -3,613 -1,810 -93 -40
Forward forex purchases (-) -1,086 2,059 -2,572 -1,370 -1,203
3. Institutional investors (excl. mutual funds): investments in assets abroad (-) -1,029 -1,466 -2,545 -402 -183
4. Households
Accumulation (-) in mutual funds specializing in forex -228 -912 788 201 94
Accumulation (-) in forex deposits in banks in Israel -662 -1,427 -1,665 -135 -186
 
a The data for February are on a liquidity month basis, i.e., beginning on the last Thursday of the previous month and ending on the last Wednesday of the current month. Hence, different periods cannot be combined from these data.
b Excluding government bond issues abroad.
c Mainly the Teva deal.