FX intervention accelerates, additional monetary tools likely

ISRAEL - In Brief 08 Sep 2020 by Jonathan Katz
The BoI purchased 2.56bn USD in August and 14.1bn YTD in order to slow shekel appreciation. The shekel appreciated by 1.1% in August (against the basket) and by 2.7% YTD. Appreciation is supported by a CA surplus (which apparently improved in Q3 due to the lack of flights abroad), net FDI, foreigners purchased government bonds (from April thru July), and Israeli institutions sold FX due to higher equity valuations abroad. The last policy rate protocol underlines the importance the MPC gives to the shekel. In addition, in August, the BoI purchased 6bn ILS government bonds and 0.3bn in corporate bonds. The rate decision was a 5-1 decision (similar to previous ones) with one member voting for zero rates due to the severity of the crisis and damage to employment. The discussion involved mostly the implications of the second wave and political uncertainty on economic activity. Despite uncertainty regarding the actual state of unemployment, there is tremendous slack. The MPC discussed the possibility of implementing additional monetary tools, but decided that at this time that the present tools are sufficient. We think that additional tools are likely if the second wave leads to a renewed lockdown and damage to economic growth.

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