The Bank of Israel bought $801 million worth of foreign currency in May in an effort to keep the shekel from climbing further against the U.S. dollar. But the intervention did not stop the currency’s march — the shekel ended the month 4.6% stronger, one of its highest exchange rates on record.
Why the central bank stepped in
Israel’s central bank has a long-standing policy of buying dollars when the shekel strengthens too quickly. A rapid appreciation hurts exporters — especially the country’s high-tech sector — because their earnings in dollars are worth less when converted back into shekels. The May purchases were part of a broader program that the bank announced last year to curb volatility in the foreign-exchange market.
The $801 million figure marks one of the larger monthly intervention sums in recent months. Yet the market pushed the shekel even higher, signaling that investors were betting on continued strength in the Israeli economy or on the dollar’s broader weakness globally.
What $801 million bought — and didn’t
By any measure, the Bank of Israel’s intervention was substantial. It bought enough dollars to move the market in normal circumstances. But May was not normal. The shekel’s rally reflected not just local economic data but also global factors: a softer U.S. dollar and strong capital inflows into Israeli tech companies.
The result was that despite the central bank’s dollar purchases — which usually put downward pressure on the shekel — the currency kept rising. The 4.6% monthly gain means the shekel was among the best-performing major currencies in May. For Israeli importers, that’s good news: they pay less for goods priced in dollars. But exporters felt the pinch, and the central bank’s failure to stem the rise raised questions about the limits of its firepower.
What happens now
The Bank of Israel has not signaled any change in its intervention strategy. The next data release on its foreign-currency reserves, expected in June, will show if it added to the $801 million in May. Markets will watch for any hint that the central bank might shift tactics — such as lowering interest rates or imposing capital controls, neither of which the bank has indicated it will do.
For now, the shekel remains near its year-to-date highs. The central bank’s challenge is that intervention alone may not be enough when global capital flows are pushing hard in the opposite direction. The next few weeks will test whether the Bank of Israel is willing to keep buying dollars at this pace — or whether it lets the shekel find its own level.
