Bank of Israel's $30 billion Forex intervention amid Israel-Hamas war

In a move aimed at stabilizing the financial landscape amidst the ongoing Israel-Gaza war, the Bank of Israel announced its decision on Monday to sell up to $30 billion in foreign currency. This step, as reported by Reuters, is the central bank's inaugural foreign exchange sale and is geared towards mitigating the economic challenges posed by the conflict with Palestinian militants in Gaza.

The market responded positively and promptly to this announcement, leading to a swift recovery of the shekel from its significant initial declines. The central bank emphasized its commitment to intervening in the market in the near future to curb volatility in the shekel exchange rate, ensuring essential liquidity for the smooth functioning of financial markets.

According to the bank's statement, it will also provide liquidity through SWAP mechanisms, allocating an amount of up to $15 billion. The central bank remains vigilant, closely monitoring developments across all markets and using available tools as needed to maintain stability.

Prior to this intervention, the shekel had experienced a decline of over 2%, reaching a 7-1/2 year low of 3.92 per dollar. Presently, the shekel stands at a rate of 3.86, indicating a decrease of 0.6%.

This move by the Bank of Israel comes in the wake of challenges faced by the Israeli economy, including a 10% decline in the shekel against the United States currency in 2023. This decline was attributed to the government's judicial overhaul plan, which significantly limited foreign investment in the country.

Israel, with forex reserves exceeding $200 billion, has pursued a strategic approach to prevent excessive strengthening of the shekel since 2008. This strategy has safeguarded exporters, especially amid the surge in foreign inflows into the country's thriving tech sector.

Amidst this economic backdrop, the region experienced a tragic incident where Hamas gunmen from Gaza killed 700 Israelis and abducted dozens, leading to a 7% decline in Israeli stock and bond prices. Numerous businesses also remained closed, marking the deadliest incursion into Israeli territory since the attacks by Egypt and Syria during the Yom Kippur War 50 years ago.

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