The BoI commits to purchasing 30bn USD this year
The Bank of Israel announced today that it will purchases 30bn USD in order to stem the forces supporting shekel appreciation. The shekel has appreciated rapidly since November, a trend which accelerated into January. 30bn USD is a significant amount (21bn were purchased in 2020) and could definitely slow appreciation and even support some weakening of the shekel in the short run. The BoI stated: “The purchases will continue so long as they do not lead to a depreciation at an extent that is not consistent with the achievement of the Bank’s price stability and financial stability objectives”. With inflation expected to remain very low and below target, we expect the full 30bn to be implemented this year. We note that the estimated current account surplus this year is expected to reach 4.5% GDP (estimate of Jonathan Katz, private consultant), and net FDI an additional 3% GDP, which together make up about 33bn USD. In addition, Israel has been enjoying financial inflows, due to the early and massive vaccinations. In short, this is a bold move by the BoI and a form of quantitative easing, which is likely to weaken the shekel in the short run, but we doubt this will be a persistent trend, especially if the Israeli economy opens up early (in Q221) following mass inoculation.