BoI Farms Out Currency Buys, Strategy Pays Off

A change in the Bank of Israel’s intervention strategy accounts for the current upswing in the shekel-dollar exchange rate, Globes reported on Sunday, quoting a currency market analyst.

“The Bank of Israel has begun using a major player in the foreign currency market in an effort to raise the shekel-dollar exchange rate above NIS 3.60/$,” Prico Risk Management and Investments CEO Yossi Fraiman said.

The BoI has been refusing to divulge details on its efforts to curb the strong shekel, but Fraiman believes its policy is clearly different from what it has been.

“My working assumption is that the Bank of Israel gave the job to a large overseas player. It could be a major U.S. bank, or perhaps two of them. There is one European bank and two U.S. banks that know how to [accomplish this], and here there are footprints. It is the work of professionals.”

The foreign currency purchases follow a different pattern that BoI’s, buying at different times of day (in evening hours), and more aggressively. For example, the volume of foreign currency purchases in January was $1.8 billion, which is unusually high for a single month, he said.

“We saw on Friday how the shekel continued to fall as expected, and we almost reached NIS 3.54/$. Someone is building a large position here, and in my opinion, it is the Bank of Israel. We have been saying every day that there is a player or several players buying, including on days when the supply is large, such as at the beginning of the month, when the exporters sell foreign currency, but the player is not deterred from buying foreign currency. This fits in with the 34 percent guideline (the ratio of foreign currency reserves to GDP), which is no longer being fulfilled.”

When asked if it is possible a new target has been set, for say, 40 percent?

“Even if it is 50%, it will not surprise me.”

Political turbulence, notably on the Syrian border, has not been a factor.

“They have no significance. A fall in Teva’s share price in New York is far more significant than events in the north. A fall in Teva’s share price can lead funds to sell their holdings and buy dollars in order to take the money out. People are already accustomed to events in the north, as long as no infrastructure is damaged,” Fraiman said.