Activity in the foreign exchange market

The following is a list of the Bank of Israel’s activities in the foreign exchange market.

Intervention in the dollar/shekel market

The Bank of Israel may intervene in the foreign exchange market by purchasing US dollars in exchange for shekels, in order to moderate the negative impact of an appreciation of the shekel on inflation and economic activity.

The good state of the Israeli economy and the current account surplus contribute to appreciation of the shekel relative to the US dollar and other currencies, which has a negative impact on domestic manufacturing and on exports, which is one of the main sources of growth for the Israeli economy.

The Bank of Israel’s intervention in the foreign exchange market is done through the Markets Department.  The Department purchases foreign exchange in accordance with the policy set by the Monetary Committee.  All aspects of the policy are examined on a regular basis, including its necessity, its effectiveness, its cost, and potential alternatives.

Swap transactions in the foreign exchange market

In March 2020, in view of the increased volatility of the global financial markets and the lack of dollar liquidity in many markets, the Bank of Israel announced that it would begin engaging in dollar/shekel swap transactions with a range of one week with domestic banks.  The tool was intended to provide the domestic banks with dollar liquidity.

On March 18, 2020, the Bank of Israel announced that at that stage, it would allocate up to $15 billion to swap transactions with the domestic banking system even for ranges of more than one week.  The Bank of Israel would continue to use this tool as long as the pressure due to the lack of dollar liquidity remained high.