Goldman Sachs sees NIS 3.25/$ by year-end

While the Bank of Israel accumulates dollars and the Manufacturers Association of Israel complain about massive damage to their profits as the shekel appreciates, Goldman Sachs offers a bleak forecast on the shekel-dollar exchange rate, saying the shekel will only get stronger.

Goldman Sachs predicts that the shekel-dollar exchange rate will be NIS 3.55/$ at the end of March, NIS 3.40/$ at the end of June, and NIS 3.25/$ at the end of 2011. The Bank of Israel today set the shekel-dollar representative exchange rate at NIS 3.566/$.

The last time the shekel-dollar exchange rate was as low as the year-end prediction by Goldman Sachs was in 2008, when it dropped to a low point of NIS 3.18/$. That plunge prompted the Bank of Israel to launch it massive interventions in the foreign currency market, and it has since bought more than $40 billion in an effort to prop up the exchange rate.

Goldman Sachs says, "Israel is at a relatively advanced stage in its cyclical recovery." Demand is expanding and interest rate differentials are widening. "The Bank of Israel will continue to accumulate foreign exchange reserves to ensure that domestic financial conditions do not tighten to rapidly or drastically."

Goldman Sachs predicts that Israel's GDP will continue to grow, along with exports. Its bullish forecast predicts 4.2-4.4% GDP growth in both 2011 and 2012.

The strengthening shekel is reflected in the balance sheets of manufacturers in 2010. A Manufacturers Association survey, published yesterday, said that manufacturers lost $3.3 billion last year due to the change in the shekel-dollar exchange rate.

Goldman Sachs predicts that the Bank of Israel will raise the interest rate to 3.5% by the end of 2011 and to 4.5% by the end of 2012.

Published by Globes [online], Israel business news - www.globes-online.com - on January 13, 2011