In the wake of a surprise assault by Hamas on Saturday, the Bank of Israel has taken decisive action to shield the depreciating shekel, which has been under significant pressure due to political instability and fears of a constitutional crisis. As of Monday, the shekel had weakened more than 2% against the dollar, equating to ILS 3.92 per dollar.
The central bank’s strategy includes selling up to $30 billion in foreign exchange and establishing a $15 billion derivatives exchange mechanism. This mechanism is designed to ensure market liquidity amidst the ongoing conflict near the Gaza border, which has already resulted in approximately 1,100 deaths and a significant number of critical injuries. The tension has also led to a surge in oil prices due to concerns about potential disruptions to Middle Eastern supplies.
In addition to these measures, the Bank of Israel will provide dollar liquidity through SWAP financial contracts. These contracts will act as a safety net for local institutional investors and lenders if necessary, according to Rafi Gozlan, chief economist at IBI Investment House Ltd.
Despite these efforts by the Bank of Israel, the shekel continues to face challenges. It has already depreciated nearly 10% this year due to ongoing political instability and fears over a potential constitutional crisis.