The Bank of Israel Monetary Committee always said that the program would be reassessed when the sovereign wealth fund began operating, en.globes.co.il reports.
The Bank of Israel today announced the termination of its program for buying foreign currency in order to counteract the effect of natural gas production on the foreign exchange rate. The change in policy comes as Governor of the Bank of Israel Karnit Flug is finishing her term.
The Bank of Israel bought 2.1 billion dollars under the plan in 2013, 3.5 billion dollars in 2014, 3.1 billion dollars in 2015, and 1.5 billion dollars in both 2016 and 2017. The Bank of Israel's other foreign currency purchases, which were designed to moderate the strengthening of the shekel in each of the past two years, totaled 6-7 billion dollars.
Starting in August 2009, the Bank of Israel began intervening in the foreign currency market, buying foreign currency on the market in order to moderate the shekel appreciation and help exporters, whose profits are affected by shekel appreciation. Starting in May 2013, the Bank of Israel also began buying foreign currency in order to moderate the effect of gas production on the current account. At that time, the Bank of Israel Monetary Committee said that program would be reassessed when the Israel Citizens' Fund, a sovereign wealth fund, is established; the fund was then expected to begin operating in 2018.
The Bank of Israel now says that the Israel Citizens' Fund will be founded in 2019; according to the latest assessments, it will begin investing money overseas in 2020. The Monetary Committee accordingly decided to terminate the program starting in 2019 and no longer purchase a predetermined sum of foreign currency.
The Bank of Israel's announcement stated, "The Committee emphasizes that activity in the foreign exchange market is an important part of the monetary tools the Bank of Israel holds, and the Bank will therefore continue to operate in the foreign exchange market in cases of exchange rate fluctuations which are not in line with fundamental economic conditions, or when conditions in the foreign exchange market are disorderly."
Earlier this year, the Bank of Israel published a study purporting to show that its foreign currency purchases had weakened the shekel by 2-3 percent, and by 4-6 percent in more intensive periods.