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Bank of Israel to Sell $30 Billion Foreign Reserves amidst Shekel’s Slide

The Bank of Israel has announced its intention to sell up to $30 billion in foreign reserves to support the Israeli shekel as it faces its weakest point in seven years. The decision comes in the wake of a sharp currency depreciation, reaching its weakest point in seven years, following a deadly incursion by Hamas militants over the weekend.

The incursion by the Palestinian militant group Hamas, which occurred during a major Jewish holiday, involved multi-pronged attacks by land, sea, and air, including the use of paragliders. It followed a barrage of thousands of rockets launched from Gaza into Israel, intensifying the ongoing conflict.

Central Bank of Israel to Control Volatility of Shekel

Due to the ongoing conflict, the Israeli shekel saw a 1.63% drop, trading at 3.90 against the US dollar, reaching its lowest value in seven years. The country’s central bank has decided to tackle the situation by selling its foreign reserves to save the local currency.

According to the official announcement on Monday, Bank of Israel Governor Amir Yaron said the bank will operate in the market to smooth out volatility in the shekel’s exchange rate and provide the necessary liquidity.

“The Bank will operate in the market during the coming period in order to moderate volatility in the shekel exchange rate and to provide the necessary liquidity for the continued proper functioning of the markets.”

Aside from the planned forex sale, the Bank of Israel will provide liquidity through SWAP mechanisms in the market, offering up to $15 billion. This move aims to ensure market stability amidst ongoing uncertainty.

The announcement follows a 6.47% drop in Israel’s benchmark TA-35 index, the largest loss in over three years. However, after the central bank’s statement, the index showed signs of recovery, edging up 0.11% during the first hour of trading on Monday.

Not the First Intervention

This is not the first time Israel’s central bank has intervened in the foreign exchange market to stabilize the shekel. Two years ago, in 2021, the Monetary Committee at the Bank of Israel announced its intention to purchase $30 billion in the foreign exchange market. The move was aimed at preventing the appreciation of the shekel.

“The advance announcement of the scope of the purchases is intended to provide the market with certainty regarding the Bank’s commitment to dealing with the recent sharp appreciation, and thus support the economy’s continued dealings with the economic ramifications of the COVID-19 crisis,” the central bank said in a statement.

Meanwhile, the impact of the shekel’s recent decline is not limited to Israel alone, as other Middle East markets have also faced declines. Egypt’s EGX 30 saw a 0.6% dip, and Saudi Arabia’s Tadawul All Share Index dropped by 0.55%.

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Bank of Israel to Sell $30 Billion Foreign Reserves amidst Shekel’s Slide