JERUSALEM, March 20 (Reuters) - Israel's central bank made a return on its foreign currency reserves of 1.56 percent in 2016, beating its average return over three years of 1.16 percent thanks to a higher allocation to equities, it said on Monday.
Reserves rose by $8 billion last year to $98.4 billion, of which $6 billion was bought to contain the shekel's appreciation and maintain exporters' competitiveness.
The Bank of Israel said in a statement that it had been able to achieve a relatively high return even though about one-third of reserves are invested European government bonds which carry negative yields. That was "the result of a long-term process, in which the share of reserves invested in risk assets -- equities and corporate bonds -- was gradually increased," it said.
In the first two months of 2017, the level of foreign exchange reserves has topped $102 billion, which exceeds 30 percent of GDP and is within the "appropriate level" of $70-$110 billion set out by the central bank.
Governor Karnit Flug has said the range is just a forecast and can be breached if necessary.
"In 2016, the reserves portfolio benefited from the continued strong performance of equity markets in the investment countries," the central bank said. "Due to the strong markets, active management ... contributed 135 basis points this year, the largest contribution in the past decade."
Reserves last year were 85 percent invested in global government and corporate bonds -- falling to 80 percent in 2017 -- while equities allocations rose in 2016 to 10 percent from 9.2 percent.
With reserves rising and the shekel continuing to strengthen, the Bank of Israel has come under pressure of late to curtail or end its policy of buying foreign currency. (Reporting by Steven Scheer; Editing by Catherine Evans)