Bank of Israel expands risk on forex reserves

A senior official said on Sunday that the Bank of Israel is investing about 8 billion shekels ($2.1 billion) of its foreign exchange reserves in Canada, Australia and Scandinavian countries.

Israel’s foreign exchange reserves have reached $77.1 billion, mostly after the central bank bought about $50 billion of foreign currency in the past four years.

The central bank invests most of its reserves in money and debt markets in the United States, Europe and Britain.

“When the reserves grew to $75 billion and in light of changes taking place in Europe and the United States, whose economies look less than good, we decided to transfer about 10% of foreign exchange reserves to investment in currencies other than the dollar and euro,” Andrew Abir, head of the Bank of Israel’s market operations, was quoted saying in an interview with the Calcalist financial daily.

He said those destinations included Canada, Australia, Sweden, Norway and Singapore — countries with smaller government debt.

“This adds risk to the foreign exchange portfolio … but we think it’s the right thing to do because it gives a better return,” Abir said.

The Bank of Israel confirmed the information in the Calcalist interview.

In 2008, the central bank started buying daily amounts of forex to try and weaken the shekel and support exports while also building up reserves in case of a crisis.

In 2009, the bank halted buying $100 million of forex a day but still continued to intervene regularly. It last bought forex last July. Since then, the dollar has gained versus the shekel.

Last week, the central bank said it had begun investing about $1.5 billion of its reserves in U.S. equities, linked to indexes. Initially, the bank will invest about 2% in U.S. equities with a plan to eventually raise it to 10%, or nearly $8 billion.