The Bank of Israel increased its high rate of U.S. dollar purchases in June by $326 million to $87, 139 million for July. The move was in an effort to combat the dramatic rise of the shekel, fueled by historic natural gas findings and production. While a strong currency is a sign of economic strength, it can make country’s exports less competitive abroad.
Government transfers to abroad at $236 million and private sector transfers at $74 million also partially offset the exchange rate. In May, $950 million worth of dollar purchases were made, which signaled a two-year high. It is expected that as natural gas production increases in the Leviathan and Tamar gas fields, the shekel will rise in turn and dollar purchases, depending on the exchange rate, are likely to increase to avoid excessively rapid growth in the shekel.
The discovery of abundant natural gas reserves in the Eastern Mediterranean has been revolutionary for Israel, and could translate into at least partial energy independence as well as the country’s potential to become an major fuel producer in the Middle East.