The Bank of Israel has refrained from actively intervening in the local foreign exchange market during the month of December, as revealed by the foreign exchange balances report. This marks a departure from the previous two months when the central bank took decisive steps to stabilize the market following the October 7 events.

The report indicates that in December, the Bank of Israel did not sell any dollars, with the total foreign currency balances currently held by the central bank standing at $204 billion. This comes after the Bank of Israel initiated a plan at the beginning of the war, aiming to sell $30 billion in the local foreign exchange market. The move was prompted by the central bank’s prediction that a conflict would likely result in a sharp devaluation of the Israeli currency.

The initial plan to sell dollars contributed significantly to stabilise the markets as the shekel returned to its pre-war levels. However, in December, the Bank of Israel started reducing the volume of dollar sales, with only $8.5 billion sold in the first two months of the war.

Alongside its intervention in the currency market, the Bank of Israel implemented various monetary plans during the war. According to the bank’s follow-up report, repo or swap transactions offered by the central bank were not utilized beyond the first month of the war, with only minimal usage in the range of a few tens of millions of dollars.

In a bid to support small businesses, the Bank of Israel introduced a program in November that resulted in loans totalling two billion shekels in December. The program offered monetary loans to banks of up to NIS 10 billion at an attractive interest rate, specifically designed for small businesses.

These measures, deemed crucial by the Bank of Israel, played a significant role in maintaining stability in Israeli economy. The central bank justified its decision not to lower interest rates in 2023, citing the positive impact of loans to small businesses. However, the bank faced criticism from the government, particularly in the economy committee, which threatened independent legislation if the bank did not respond to non-bank entities.

Main article photo: Bank of Israel Governor Amir Yaron. REUTERS Ronen Zvulun.