Bank of Israel under fire over decade-long currency intervention
Steven Scheer, 08 March 2017
JERUSALEM (Reuters) – The Bank of Israel has a problem. After spending almost a decade and huge sums trying to curb the shekel, the currency is still rising relentlessly – to the dismay of the country’s exporters.
In 2008 the central bank began what was supposed to be a temporary fix. The plan was to buy large amounts of dollars and halt a rapid rise in the shekel, partly to protect exporters who account for more than 30 percent of economic output and form a strong domestic lobby.
But after purchasing more than $70 billion over the years, the bank is still struggling to soften the exchange rate and prevent Israeli exports from becoming relatively more expensive on world markets.
In the past 12 months, the shekel has gained 6 percent against the dollar, 11 percent against the euro and 10 percent against a basket of its main trading currencies. This has taken it in recent weeks to a 15-year high versus the euro, a 2-1/2 year peak against the dollar and its strongest level ever against the basket.
With the Israeli economy growing well, some experts and former policymakers say intervention is no longer necessary and may be pointless. Buying dollars amounts to little more than a subsidy for sometimes inefficient exporters, at the expense of the rest of the economy, they argue.
