The squeeze between the weak dollar on international markets on one hand and continuing foreign investment in Israel on the other have resulted in a 1% drop in the shekel-dollar exchange rate since April 1, to a six-year low of NIS 4.123/$. The banks believe that the Bank of Israel will not bring forward its May interest rate decision, due on April 22, and predict that the shekel will continue to appreciate.
Bank Hapoalim believes that the Bank of Israel will continue to cut the interest rate. Bank Hapoalim foreign currency dealing room manager Liran Carmel says, “From foreign banks to hedge funds, everyone is selling dollars in order to invest in the Tel Aviv Stock Exchange (TASE), as well as for speculation. The business sector is also selling dollars.” He predicts no change in this trend in the foreseeable future. “What is happening around the world supports the dollar weakening against other currencies.”
Carmel says, “We’re missing the point here about the basket. If we look at all the currencies vis-à-vis the shekel, nothing much is happening. Only the dollar is weakening against the shekel, and what’s happening here is what’s happening worldwide. The shekel isn't appreciating, rather the dollar is weakening.
“ What could change the trend is the dollar interest rate, and we’ve already seen the five-year inter-bank interest rate rise to 5.1% last week. What could support the dollar in Israel, and restore an exchange rate of NIS 4.18-4.20/$, but only as a correction rather than a change in trend, is an interest rate cut of no more than 25 basis points.”
Carmel rejects assessments that Governor of the Bank of Israel Prof. Stanley Fischer will bring forward the interest rate decision, rather he will continue monetary expansion at fixed intervals. “Fischer won’t stop at a 25-base point cut. The dollar will continue to weaken and Fischer will continue to cut the interest rate,” he says.
Carmel disagrees with a prediction by Excellence Nessuah Securities chief economist Shlomo Maoz made to “Globes” last week that no interest rate cut will help, and that the rate should should now be 1.5-2%. Carmel says that the markets will determine the right interest rate. “The interest rate in Japan has been zero for years, and the yen is still quite strong,” he says.
Bank Leumi dealing room interest department deputy manager Zachi Eliash says, “We’re connected to what happens in the world. Only a change in the global trend combined with an interest rate cut in Israel can stop the shekel’s appreciation.”
Bank Leumi give the shekel-dollar exchange rate a support level of NIS 4.12/$, followed by NIS 4.10/$. A support level of NIS 4.05/$ in the coming months is possible.
Bank Leumi sees no reason to deviate from the scheduled interest rate decision for May. “The date is changed only because of extreme developments. It should be remembered that an interest rate cut has no immediate effect. Therefore, a week here or there is insubstantial.”
Published by Globes [online], Israel business news - www.globes.co.il - on April 10, 2007
© Copyright of Globes Publisher Itonut (1983) Ltd. 2007