Israel-Gaza Conflict: Bank of Israel to sell $30 billion of forex to stabilise shekel amid war

This action swiftly brought about a positive response in the market, leading to the recovery of the shekel from significant initial declines.

Livemint, Edited By Jocelyn Fernandes (with inputs from Reuters)
Updated9 Oct 2023, 12:09 PM IST
Representative image | The move appeared to quickly calm the market as the shekel recovered from steep early losses. (Photo by JACK GUEZ / AFP)
Representative image | The move appeared to quickly calm the market as the shekel recovered from steep early losses. (Photo by JACK GUEZ / AFP)(AFP)

The Bank of Israel on Monday, October 9, announced plans to sell a maximum of $30 billion in foreign currency on the open market, Reuters reported. This marks the central bank's inaugural foreign exchange sale, aimed at stabilising the financial situation during Israel's conflict with Palestinian militants in Gaza.

This action swiftly brought about a positive response in the market, leading to the recovery of the shekel from significant initial declines. The bank stated its intention to intervene in the market in the coming period to mitigate volatility in the shekel exchange rate and ensure the essential liquidity for the markets' smooth operation.

Also Read: Nifty 50, Sensex decline on Israel-Hamas war: 5 factors that weigh on market sentiment

In a released statement, the central bank also disclosed its commitment to providing liquidity through SWAP mechanisms, with an allocated amount of up to $15 billion. It emphasised ongoing vigilance, stating that it will monitor developments across all markets and employ available tools as deemed necessary.

Currency woes

Prior to the announcement, the shekel had experienced a decline of over 2 percent, reaching a more than 7-1/2 year low of 3.92 per dollar, the report added. Currently, the shekel is positioned at a rate of 3.86, reflecting a decrease of 0.6 percent, it said.

Also Read: ONGC share price gains as crude prices surge on Israel-Hamas war

The shekel had already exhibited weakness, registering a 10 percent decline against the United States currency in 2023. This decline was primarily attributed to the government's judicial overhaul plan, which significantly restricted foreign investment, Reuters said.

Strategic moves

Accumulating forex reserves exceeding $200 billion, Israel has acquired a substantial amount through forex purchases since 2008. This strategy aimed to prevent the shekel from strengthening excessively, safeguarding exporters, especially amidst the surge in foreign inflows to the country's tech sector.

The most recent intervention by the bank occurred in January 2022.

Also Read: Gold, silver price jumps amid rising Israel Palenstine conflict. Opportunity to buy?

In a statement last month, Bank of Israel Governor Amir Yaron informed Reuters that despite the notable depreciation of the shekel, contributing to an increase in inflation, there was no requirement for intervention as there were no apparent market failures.

Geopolitics at play

In the aftermath of a dire incident where Hamas gunmen from Gaza killed 700 Israelis and abducted dozens, Israeli stock and bond prices witnessed a 7 percent decline, it added. Additionally, numerous businesses remained closed on Sunday, October 8. 

This marked the deadliest incursion into Israeli territory since the attacks by Egypt and Syria during the Yom Kippur war 50 years ago.

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First Published:9 Oct 2023, 12:09 PM IST
HomeMarketsIsrael-Gaza Conflict: Bank of Israel to sell $30 billion of forex to stabilise shekel amid war

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