The Bank of Israel said it will purchase $3.5 billion in foreign currency during 2014 as part of its program to offset the impact of local natural gas production on the country's current account and exchange rate.
The Bank of Israel said it will purchase $3.5 billion in foreign
currency during 2014 as part of its program to offset the impact of local
natural gas production on the country's current account and exchange rate.
The bank initially outlined the purchase program in May, when increased gas
production sharply pushed up the value of the shekel. It then said it would buy
about $2 billion by the end of 2013, but didn't specify how much it would buy
in subsequent years.
The Bank of Israel plans to buy foreign currency to offset the effects of gas
production on the exchange rate through at least 2018, when a sovereign wealth
fund is scheduled to start operating.
In March,
Israel
began
producing natural gas from its offshore Tamar reserve, which contains about 9
trillion cubic feet of gas, enough to meet
Israel
's
needs for decades. Another larger reserve, Leviathan, is scheduled to begin
production in 2017, and
Israel
plans
to export some of that gas, but has not yet signed any final agreements with
potential buyers.
The start of production from Tamar strengthened the shekel partly because
Israeli companies no longer needed to buy dollars in order to purchase energy
from abroad. But economists also attribute the stronger shekel to speculative
traders capitalizing on the interest rate differential between
Israel
and
other larger economies, like the
U.S.
and
euro zone.
In addition to purchasing foreign currency, the central bank has intervened in
the market several times since March to buy dollars to help curb the
appreciation of the shekel. The bank has recently cut interest rates, citing
the strength of the shekel which could threaten
Israel
's
export-dependent economy.
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