FX intervention tapering

ISRAEL - In Brief 05 Aug 2021 by Jonathan Katz
The BoI appears to have taken its foot off the intervention gas pedal. In July, only 0.5bn USD were purchased following 3.2bn in June and more than 25bn on 1H21. The shekel appreciated by 0.7% in July (against the basket), following a 1% appreciation in June. Pressure for appreciation has continued in the beginning of August as well. The BoI may be reducing FX intervention as the economy recovers (less accommodation), a policy clearly stated by Governor Yaron in the past. We expect further shekel appreciation to 3.15/USD in one year, a factor expected to moderate inflation and keep policy rates low for quite some time. Good news for the bond market.In July, government bond purchases reached 3.1bn ILS following 3.3bn in June and 71.7bn in total out of a framework of 85bn. Assuming economic recovery continues, we do not expect this framework to be expanded. Meanwhile, government bond issuance is declining rapidly (on a more positive fiscal outlook), supportive of lower bond yields.

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