Bank of Israel sold $8.2 billion since war started to protect shekel from collapse

Foreign reserves fall to lowest level in a year after central bank’s currency interventions in October, helping shekel to recover all of its war losses

Sharon Wrobel is a tech reporter for The Times of Israel.

Bank of Israel Governor Amir Yaron speaks during a press conference at the Bank of Israel in Jerusalem, on January 7, 2019. (Noam Revkin Fenton/Flash90)
Bank of Israel Governor Amir Yaron speaks during a press conference at the Bank of Israel in Jerusalem, on January 7, 2019. (Noam Revkin Fenton/Flash90)

The Bank of Israel said Tuesday that it sold $8.2 billion of foreign currency in October, helping to stem the shekel’s slide during the month of war with the Hamas terror group.

Following the announcement, the shekel strengthened more than 1% and was trading around 3.84 against the US dollar in Tel Aviv after weakening to NIS 4.08 against the greenback on October 27, its lowest level in 11 years. Over the past week, the local currency also recouped all of the heavy losses it suffered in October with investors becoming less pessimistic about an escalation in the north of the country and the eruption of a broader regional war. The shekel-dollar exchange rate stood at NIS 3.86 before the onslaught by the Iran-backed Hamas group.

With the outbreak of the war with Hamas, central bank governor Amir Yaron announced a plan to sell up to $30 billion in foreign exchange to protect the shekel from collapse. The program allows the Bank of Israel to intervene in the foreign exchange market during the war period to moderate volatility in the shekel exchange rate and to provide the necessary liquidity for the continued functioning of the markets.

In addition to the $30 billion program, the Bank of Israel said it would provide dollar liquidity to the market through SWAP mechanisms of as much as $15 billion. SWAP mechanisms are a form of future contracts through which two parties exchange the cash flows or liabilities from two different financial instruments.

The Bank of Israel last intervened in 2021, when it bought billions of dollars to stem the appreciation of the shekel. Now the Bank of Israel is selling dollars in the open market to maintain stability in the local currency and functioning of the financial market.

Last month, the shekel crossed the 4 per dollar threshold for the first time since 2015 as Israel declared war on Hamas after some 3,000 terrorists burst into the country from the Gaza Strip by land, sea, and air on October 7, murdering over 1,400 people, a majority of them civilians.

Hamas and allied terrorist factions also dragged at least 240 hostages — including some 30 children — to Gaza.

As a result of the Bank of Israel’s currency interventions, the country’s foreign reserves fell by $7.3 billion to $191.2 billion at the end of October, the lowest level in a year, central bank data showed.  A revaluation decreased the level of foreign reserves by about $1.5 billion, which was partly offset by government transfers from abroad totaling about $2.4 billion, the central bank said. The current level of foreign reserves is equal to 36.8% of the country’s gross domestic product.

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