The Bank of Israel has taken decisive action to bolster its domestic currency, the shekel, which has experienced a sharp decline following the recent incursion by Hamas militants. In response to the situation, the central bank has unveiled plans to sell up to $30 billion in foreign reserves, signaling its commitment to stabilizing the financial markets amidst growing volatility.
The Israeli shekel weakened by 1.63% in trading, reaching a rate of 3.90 against the U.S. dollar, marking its lowest level in seven years. This significant depreciation prompted the Bank of Israel to release a statement outlining its intervention strategy. The central bank aims to moderate the fluctuations in the shekel exchange rate and provide essential liquidity to maintain market functionality.
In addition to the $30 billion program, the Bank of Israel has announced its intention to inject liquidity into the market through SWAP mechanisms, with an allocation of up to $15 billion. The central bank emphasized its commitment to closely monitoring market developments and employing the necessary tools to address evolving challenges.
The financial impact of the conflict became apparent as Israel’s benchmark TA-35 index experienced a 6.47% decline on Sunday, marking its most substantial loss in over three years, dating back to March 2020. However, following the announcement of the Bank of Israel’s intervention measures, the index demonstrated resilience, posting a modest 0.11% increase during the first hour of trading on Monday.
Other Middle East stock markets also witnessed declines in response to the escalating tensions. Egypt’s EGX 30 index declined by 0.6% on Monday, while Saudi Arabia’s Tadawul All Share Index slid by 0.55%.
Zvi Eckstein, former deputy governor at the Bank of Israel and emeritus professor of economics at Tel Aviv University, emphasized the resilience of the Israeli economy, stating, “The Israeli economy is very strong. Unless there [is] an Iranian physical attack, it’s very likely that Israel will get back to fully functioning economically within a week or two.” However, he acknowledged that the Israeli currency may experience some devaluation due to reduced exposure to Israel by both domestic and foreign investors amid heightened economic risks.
The recent events have heightened concerns and uncertainty in the region, leading the Bank of Israel to take proactive steps to maintain stability in financial markets and ensure the proper functioning of the Israeli economy.