May 8, 2018 / 9:47 AM / 9 months ago

Equities drive gains in Bank of Israel forex reserves in 2017

JERUSALEM, May 8 (Reuters) - Israel’s central bank made a return of 3 percent on its foreign currency reserves in 2017, handily beating its average return over three years of 1.7 percent, largely due to a boost in its allocation of equities, it said.

Reserves rose by $14.6 billion last year to $113 billion, of which $6.6 billion was bought by the Bank of Israel within the framework of monetary policy to contain the shekel’s appreciation and maintain exporters’ competitiveness.

It said it was able to achieve a high return despite the fact that one-third of the reserves are invested in European government bonds that offer low or negative yields.

The amount of equities in the portfolio rose to 13.3 percent last year from 10 percent in 2016, while the allocation of corporate bonds increased to 6 percent from 4.8 percent.

“The investment in equities more than doubled the cumulative return of the reserves portfolio in the past 6 years, but as equity markets are cyclical and volatile, it is reasonable to expect price declines in the future as well,” the bank said.

In the first three months of 2018, the level of foreign exchange reserves topped $115 billion, which is some 33 percent of GDP and above the “appropriate level” of $70-$110 billion set out by the central bank. (Reporting by Steven Scheer; Editing by Tova Cohen)

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