Bank of Israel announced the cessation of the foreign currency purchases program

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by Ifi Reporter Category:Capital Market Nov 12, 2018

The Bank of Israel announced the cessation of the foreign currency purchases program aimed at offsetting the effect of gas production on the exchange rate, which began at the end of the tenure of former Governor Stanley Fischer, coinciding with the end of the term of the Governor, Karnit Flug. The dollar posted a sharp drop, moving from a 0.2% rise to a drop of 0.36% and is now trading around NIS 3.6767.
The Bank of Israel reports that the fund for Israeli citizens is scheduled to be established in 2019. According to current estimates, it is expected to begin investing money abroad in 2020. In light of this, the Monetary Committee has decided to terminate the plan starting in 2019 and not to purchase foreign currency at a predetermined amount.
The Bank notes that "the Committee emphasizes that transactions in the foreign exchange market are an important part of the Bank of Israel's monetary instruments, and therefore the Bank will continue to operate in the foreign exchange market in the event of exceptional fluctuations in the exchange rate that do not correspond to the basic economic conditions or when the market is matte "H is not functioning properly."
In 2013, the Bank of Israel purchased $ 2.1 billion in this program; In 2014, the bank purchased $ 3.5 billion; In 2015, the bank purchased $ 3.1 billion; And in the past two years the Bank of Israel has purchased $ 1.5 billion in each of the years (2016-2017). The other purchases intended to moderate the strengthening of the shekel in each of the last two years were estimated at $ 6-7 billion.
 Since August 2009, the Bank of Israel has intervened in the foreign currency market and purchased dollars in the market in order to moderate the appreciation of the shekel in order to help exporters as the appreciation of the shekel harms their profitability. . At the same time, the committee noted that the plan would be reexamined with the establishment of the wealth fund (the Fund for Israeli Citizens), which was expected to begin operating in 2018.
The Bank notes that "the Committee emphasizes that transactions in the foreign exchange market are an important part of the Bank of Israel's monetary instruments, and therefore the Bank will continue to operate in the foreign exchange market in the event of exceptional fluctuations in the exchange rate that do not correspond to the basic economic conditions or when the market is matte "The Bank of Israel published a study according to which the Bank's total purchases weakened the shekel by 3% -2%, while in more intensive periods the effect reached 6% -4%.

Karnit Flug the CEO of Israel Bank said In the the conference summing up her tenure that we saw examples from two studies conducted by researchers from our research division, and we heard a lecture by Laurence Boone, chief economist of the OECD, on policy issues related to inclusive growth.
Both studies provided a glimpse into the type of research that addresses specific policy issues; Public housing policy, and a "negative income tax" - or an income grant for low-income workers.
The work done in the OECD on inclusive growth has touched upon a number of important policy insights and dilemmas related to the pursuit of inclusive growth. Among other things, the need to improve education and support lifelong learning and skills acquisition, the need to expand access to affordable housing, and the contribution of adapting and assimilating innovative technologies in every part of the economy, especially in small and young companies. All these are issues that we, as economic advisers to the government, have dealt with over the years.
Some of the studies conducted by the Research Department of the Bank of Israel focus on specific policy questions, in order to directly assist in the formulation of a better policy. Some studies are more basic, improving our understanding of the interaction between different relevant variables, while others measure and measure the effects between variables, or help to estimate the speed or impact of policy on relevant variables. Common to all of these is laying the foundations and building the infrastructure for designing a more informed policy, thus helping to design better policies.
Naturally, a question that arises in this context is - why the Bank of Israel? Should the economic adviser to the government be the governor of the central bank?
This question has been discussed in the past by the Bank of Israel, among some of the people sitting here today. While discussing the new Bank of Israel Law, Stanley Fischer believed that the governor's role as economic adviser to the government places the bank in a position of constant tension with the government and may undermine the Bank's independence with regard to the core areas of its responsibility. At that time I was the director of the research division, and I supported leaving the role of the economic adviser in the law, as was finally decided. A few years later, when I was appointed governor, I met Stanley (in Basel, at a meeting of the BIS) after one of my turbulent confrontations with the government, and told him that I now understood better his initial view of leaving the position of economic adviser to the bank. Stanley surprised me by saying that from an external perspective, he is even more convinced of the importance of this role of the Bank of Israel.
This question was also presented to an independent evaluation committee that was commissioned to evaluate the Bank of Israel's Research Department in 2012. In their report, I quote: "We reached the bank with great skepticism about the responsibility of a central bank to be an adviser to the government, Economic. " "In the absence of fundamental changes in other institutions in Israel, we agree that the Bank must continue to fulfill its critical role as economic advisor to the government."
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