By Barry Davidson
Friday 23 October 2009
Jerusalem--On Monday, 19 October 2009, the Bank of Israel (BOI) reiterated part of its monetary policy: the exchange rate.
According to a release by the BOI on the same day, it (BOI) operates in the foreign exchange markets.
Sometimes there are situations in which there are unusual exchange rate movements that are not in sinc with fundamental economic conditions.
Also, when disorderly conditions prevail in the foreign exchange market, the BOI does not have a specific exchange rate target.
This could be a problem as fluctuations in currency evaluations can affect the price of imports to Israel, or exports from the country.
However, the BOI asserted that it does have estimates of what the equilibrium exchange rate of the new Israel shekel (n.i.s.). This is based on the the balance of payments of the economy.
The BOI did not that the equilibrium exchange rate typically does change over the course of time as economic conditions change. Moreover, there is a significant range of uncertainty around estimates of the equilibrium rate. Also, deviations from estimated equilibrium exchange rates are common and sometimes persistent.
The BOI evaluates changes in the exchange rate of the n.i.s. in terms of the exchange rate against the United States dollar, and also the exchange rate of the shekel against other currencies, including the euro.
This considereation is done because Israel's economy is affected not only by the economy of the United States, but also by the economies of other countries, including economic pacts, such as the European Union.
Each business day, the BOI publishes the exchange rate of the shekel. It is an index of the exchange rates of the shekel against a basket of currencies.
This index reflect the structure of Israeli trade.
In the view of the BOI, because the U.S. dollar has weakened considerably against most currencies during the past year, the exchange rate of the shekel has appreciated less than that of the exchange rate of the shekel against the dollar.
The BOI analyzes the nature of activity in the foreign exchange markets for the shekel. The BOI uses this information in formating its Israeli monetary policy with effects the national economy.
