The Bank of Israel is selling foreign exchange reserves on the market for the first time in order to stabilize the shekel exchange rate. Dr. Golan Benita, director of the Bank of Israel's Markets Department, said.

On October 9, the exchange rate of the Israeli shekel to the U.S. dollar on the over-the-counter forex market fell to its lowest level in almost eight years. In Asia, the shekel was falling to 4.3 per dollar in this, October 11, early morning’s thin trading. But after the central bank’s interventions, the exchange rate stabilized by cutting losses and reaching about 3.92/USD. Israeli stock and bond markets obtained stronger footing as well.

Nevertheless, the very fact of currency interventions, which no one would have thought of three days ago, causes concern among many people.

The mail question is whether the Bank of Israel is capable of keeping all adversities under control? What will happen to the shekel, country’s reserves, the budget, inflation, and the real estate market, too?

Israel has significant reserves by Western economic standards – about $200 billion at the end of August – $30 bn of which, according to the Bank of Israel, is prepared to be spent on exchange rate stabilization measures.

So far it’s feasible for the Bank of Israel to afford:

● the ratio of reserves to short-term debt in 2022 was estimated by the IMF at 2.84 (a level above 1.5 is considered excellent);

● the country’s ratio of reserves to imports is 15.55 (above 12 – excellent);

● Israeli's budget was also fine – in 2022 it had a surplus of 0.55% of GDP. Developed countries cannot even dream of such perfect numbers;

● The credit ratings back up this notion, from Moody's – A1, from Fitch – A+, and from S&P – AA-.

So even a 15% reduction in reserves does not look critical. And all the announced $30 bln will most likely not be sold if markets recover from turmoil by themselves.

On October 9 in a course of knee-jerk reaction, the yields of Israeli 10-year notes jumped to 4.51%. However, with a stable budget, a debt-to-GDP ratio in the neighborhood of 55% (the average for developed economies is 83%), this should not be a problem.

Israel's economy has consistently grown faster than other developed economies in recent years:

●2020: Israel -1.9%, developed economies -4.2%;

● 2021: Israel +8.6%, developed countries +5.4%;

● 2022: Israel +6.4%, developed countries +2.7%;

● Forecast 2023 (pre-war): Israel +2.9%, developed countries +1.3%.

Inflation has also been lower on average, accelerating above 5% in 2022, but has now slowed to 4.1%. Simply put, Israel's economy has been and remains strong.

Of course, mobilization and increased military spending can shake up former stability. Especially if the war drags on. But the Israeli economy and financial system have enough margin of safety to cope with the situation.