The Bank of Israel's policy of intervening in the foreign-exchange market continues to spark controversy. The governor, Stanley Fischer, has defended the central bank's actions, arguing that it is an important means of limiting the damage to exports that would otherwise arise from a faster appreciation of the New Israeli shekel. In a recent interview, Mr Fischer even refused to rule out the possibility of international reserves reaching US$100bn (from US$68bn currently), on the back of continued intervention. However, as recently noted by the IMF, persistent one-sided intervention will add to the central bank's already considerable sterilisation losses and ultimately threaten the credibility of the floating exchange-rate regime. An alternative would be to impose temporary controls on the inflow of short-term capital. Given that the shekel will continue to receive strong support from a large current-account surplus and a steadily widening interest-rate differential with key developed economies, we believe the Bank of Israel may come round to the view that temporary restrictions on short-term capital inflows constitute the least-bad policy option.