Bank of Israel Buys About $800 Million to Prevent Market Failure

The Bank of Israel intervened directly in the foreign exchange market today, Sunday, and bought about $800 million over the past month. This is the first time the bank has used this tool since the coronavirus crisis.

The move follows a trend of strengthening in the U.S. dollar, which rose by about 10 agorot over the past week after the Bank of Israel decided to cut interest rates. The Bank of Israel said that, unlike past interventions, the stated goal of the current move is not to deliberately strengthen the dollar, but to "prevent market failure" in foreign exchange trading.

The current action stands in contrast to previous statements by the governor, who had said in the past that the bank did not intend to intervene in trading in this way. Following the recent moves in the capital market and monetary policy, the question arises whether the central bank is trying to set a "floor" for the dollar exchange rate, and whether the step reflects the governor’s intentions regarding the continuation of economic policy in the near future.