No BoI FX intervention in February

ISRAEL - In Brief 06 Mar 2023 by Jonathan Katz
The Bank of Israel did not sell FX at all in February. The reserves did decline by 4.7ml USD due mostly to revaluation (global dollar appreciation). This underlines the BoI policy of avoiding FX intervention unless there is tremendous market dislocation in the short term. The weakening of the shekel supported a 0.5% rate hike in February (rather than 0.25%). If recent shekel appreciation continues we expect a modest hike of 0.25% on April 3. In the last rate decision, “4 of the 5 Committee members supported an interest rate increase of 0.5 percentage points, to 4.25 percent, in view of the persistence of inflation and the prolonged depreciation in recent months. One Committee member supported an increase of 0.25 percentage points. The Committee members noted that the Israeli economy is recording strong economic activity, accompanied by a tight labor market and an increase in the inflation environment.” This is the first time the shekel depreciation is explicitly mentioned as the rational for tightening. We expect the degree of future tightening to continue to be impacted by FX movements. Today's news impacting the markets regards progress towards reaching a compromise regarding the judicial measures. It is too early to tell how concrete this news is.

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