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| 21.4.2008 |
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| Summary of Israel's Foreign Exchange Activity in March 2008
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| During March the shekel appreciated against the dollar by 2.3 percent, and depreciated against the euro by 1.6 percent. From the beginning of the month until 19 March the shekel appreciated against the dollar by more than 7 percent; on that date the trend reversed and the shekel started to weaken, in light of the Bank of Israel announcement of its intention to increase the foreign currency reserves over the next two years and its purchases of foreign currency |
| Exchange-rate risk––as measured by the implied volatility of NIS/$ options––rose by 0.2 percentage points from its February level, to 12.2 percent. Its movements during the month were irregular: in the first two weeks the volatility stood at 11 percent; in the week from 13 to 19 March it rose sharply to 14.8 percent; and from then till the end of the month it declined by one percentage point. These fluctuations reflect the high level of uncertainty prevailing. The rise in the risk premium applied to all terms, but was more moderate for the short term. In the emerging markets exchange-rate risk rose by 0.9 percentage points in March, to 11.7 percent. |
| In March the Bank of Israel purchased foreign currency for the first time since 1998. The purchases totaled $700 million––$600 million over the two days 13 and 14 March, and the rest between 20 March and the end of the month. |
| Nonresidents bought foreign currency in March via derivatives, and also continued to invest in bonds and shares on the Tel Aviv Stock Exchange. Most bond purchases were made between 20 and 26 of March, the last liquidity week of the month. FDI (foreign direct investment) declined to $261 million, compared with a monthly average of about $500 million in the last few months. |
| The business sector was a net seller of short-term foreign currency instruments in March, mainly via derivatives and conversions from foreign currency deposits in Israel and abroad, reducing those deposits by $550 million, following their reduction by $1 billion in February. At the same time the business sector repaid foreign currency credit from banks in Israel and continued with both direct and portfolio investment abroad. |
| Institutional investors, and in particular the pension funds, started investing abroad again after a marked slowdown in these investments. They also continued to accumulate foreign currency in bank deposits in Israel and abroad, in the amount of $140 million. Their activity differed from that of the business sector and households, which reduced their foreign currency deposits for the second month in succession. |
| Households’ withdrew $193 million from their foreign currency deposits in Israel and abroad, in contrast to the accumulation that has characterized their activity for more than a year. It is too soon, however, to conclude that this is a reversal of the trend. Households also realized investments in mutual funds that invest foreign currency abroad, to a greater extent than the average realizations over the past year. |
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| Main Indicators of Activity in the NIS/Forex Market forex sales (+), forex purchases (-) $ million |
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2006 |
2007 |
From 1 Jan. 2008 to 26 Mar. 2008 |
February 2008a |
March 2008a |
| 1. Nonresidents |
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| Total direct and portfolio (shares and bonds) investmentb |
23,021 |
11,568 |
3,537 |
1,130 |
802 |
| Portfolio investment in Israeli securities (bonds and shares) (+) |
8,329 |
1,297 |
1,664 |
654 |
541 |
| of which In portfolio shares on the TASE (+) |
-96 |
894 |
1,002 |
293 |
179 |
| In Israeli bonds on the TASE (+) |
2,231 |
-554 |
85 |
233 |
229 |
| Israeli issues abroad (bonds and shares) |
c 8266 |
489 |
317 |
4 |
0 |
| Direct investment (+) |
14,692 |
10,271 |
1,873 |
475 |
261 |
| Purchases of local-currency assets via derivatives (+) |
1,171 |
-3,299 |
601 |
49 |
-823 |
| 2. Business sector |
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| Direct investments abroad (-) |
-14843 |
-6848 |
-989 |
-421 |
-238 |
| Investments in portfolio bonds and shares (-) |
-8457 |
-5477 |
395 |
225 |
-45 |
| Accumulation in foreign-currency deposits (-) |
-3005 |
-5098 |
539 |
1012 |
547 |
| Net foreign-currency bank credit taken from banks in Israel (+) |
-1688 |
-543 |
-331 |
-159 |
-148 |
| Forward forex purchases via derivatives (-) |
-2557 |
2261 |
-1267 |
-662 |
268 |
| 3. Institutional investors (excl. mutual funds): investments in assets abroad (-) |
-3105 |
-3764 |
-32 |
185 |
-263 |
| 4. Households |
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| Accumulation (-) in mutual funds specializing in forex |
788 |
1083 |
661 |
70 |
180 |
| Accumulation (-) in forex deposits in banks in Israel |
-1669 |
-1848 |
-85 |
102 |
132 |
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| a |
The data for these months are on a liquidity month basis, i.e., beginning on the last Thursday of the previous month and ending on the last Wednesday of the current month. Hence, different periods cannot be combined from these data. |
| b |
Excluding government bond issues abroad. |
| c |
Mainly the Teva deal. |
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