Merrill Lynch Puts $1 Billion Monthly Price Tag on Shekel Intervention


BofA Merrill Lynch put a price tag on the cost of Israeli central bank interventions to rein in the shekel — $1 billion per month, Globes reported.

“We estimate that the Bank of Israel has to purchase $1 billion per month on average in 2014 to prevent a shekel appreciation in nominal effective exchange rate terms. We recommend keeping a cautious eye on the amount of foreign exchange interventions,” said Merrill Lynch.

“With the current account surplus projected to increase, the range of foreign exchange purchases should be extended to $1-1.25 billion a month by 2015. This includes about $300 million for compensation of gas production and about $750 million net purchases to compensate other foreign exchange flows,” says Merrill Lynch, adding, “The Bank of Israel averaged about $400 million of foreign exchange purchases, in addition to gas purchases, per month in 2013 since beginning the program last May. That did not stop shekel appreciation; it only slowed it from -1.2% per month to 0.4% per month.”

Merrill Lynch noted that the BOI plans to buy $3.5 billion in 2014 to offset the effect of natural gas production on the exchange rate. It bought $1.73 billion in January in an active intervention in the market.