The Bank of Israel announced a plan to sell up to $30 billion in foreign reserves to support its domestic currency, the Israeli shekel, which had recently weakened significantly due to a deadly incursion by Hamas militants over the weekend.
The shekel’s value had declined by 1.63%, reaching a seven-year low of 3.90 against the US dollar. The central bank’s statement on Monday emphasized its intention to stabilize the shekel exchange rate and ensure market functionality by providing necessary liquidity. Additionally, the bank revealed it would offer liquidity through SWAP mechanisms in the market, with a total program value of up to $15 billion.
The Bank of Israel has committed to closely monitoring market developments and employing available tools as necessary. Israel’s TA-35 index experienced a significant 6.47% drop on Sunday, marking its largest loss in over three years. However, following the Bank of Israel’s announcement, the index showed a slight 0.11% increase in the first hour of Monday’s trading session.
Other Middle Eastern markets also witnessed declines, with Egypt’s EGX 30 falling by 0.6% and Saudi Arabia’s Tadawul All Share Index sliding by 0.55% on Monday. Despite recent challenges, experts like Zvi Eckstein, former deputy governor at the Bank of Israel, expressed confidence in the resilience of the Israeli economy, predicting a quick recovery unless faced with a direct Iranian physical attack.
According to Zvi Eckstein, emeritus professor of economics at Tel Aviv University, the Israeli currency is expected to experience some devaluation due to reduced investment from both domestic and foreign sources. This decrease in exposure to Israel is driven by heightened economic risks in the country.
The devaluation concerns arise in the aftermath of a significant security incident during a major Jewish holiday, in which the Palestinian militant group Hamas launched a coordinated infiltration into Israel via land, sea, and air, even employing paragliders. This attack followed a barrage of thousands of rockets launched from Gaza into Israel.
(Source: Lee Ying Shan | CNBC)
