Governor Karnit Flug pledged to keep intervening in the foreign exchange market if needed to tame the shekel, which gained more in March than any other month since 2011.
The shekel is still too strong and continues to hamper growth in exports that account for about a third of Israel’s $306bn economy, according to Flug, who spoke at a news conference in Jerusalem. On Friday, the central bank reportedly bought a “medium” amount of dollars after the currency rose to a record high against a basket of currencies including the dollar and the euro on Thursday, according to data compiled by Bloomberg. The shekel weakened 0.5% to 3.7753 per dollar on Friday.
“Flug’s comment signals that the central bank is under pressure but her words won’t be enough to have an impact as the currency’s strength will continue to be driven by the weakness in the US dollar,” Moshe Shalom, head of research at currency brokerage FXCM Israel Ltd, said by phone. “The central bank will need to buy a few hundred millions of dollars to weaken the currency and is likely to intervene if the shekel moves below 3.75.”
Flug said that the Bank of Israel will continue to take steps to support export growth in an economy she said was in “reasonable shape.” The central bank last week left borrowing costs near zero for a 13th month as it battles a strong shekel and 18 months of price drops. The Finance Ministry last week revised its 2016 growth forecast downward to 2.8% mainly due to weakness in exports, which fell 3.6% in February.