The shekel continues to gain against the dollar, euro and other major currencies as the Bank of Israel foreign currency purchasing program nears the declared target of $30 billion for 2021.
This afternoon the Bank of Israel set the representative shekel-dollar rate down 0.124% from Tuesday, at NIS 3.213/$, and the representative shekel-euro rate was set 0.384% lower, at NIS 3.809/€. This is the strongest that the shekel has been since the Bank of Israel announced its foreign currency purchasing program seven months ago.
In inter-bank trading later this afternoon the shekel-dollar rate was down another 0.24% at NIS 3.205/$, inviting the Bank of Israel to intervene and buy foreign currency. Although Bank of Israel Governor Prof. Amir Yaron has said that the foreign currency purchasing program will likely exceed $30 billion, the latest gains by the shekel will test just where it stands on the matter and whether the purchasing program has come to an end.
While the Bank of Israel is expected to intervene from time to time to buy foreign currency, it is to be seen whether it will be on the scale of the $25 billion of foreign currency purchased in the first half of 2021.
The strengthening of the shekel is influenced by the flow of capital into Israel, among other things, due to high-tech exits, and the consequent current account surplus is likely to continue through to next year. Mizrahi-Tefahot Bank chief strategist Modi Shafrir said, "The basic forces supporting the strong shekel (a major current account surplus and substantial growth in the scale of direct investments flowing - mainly into the local high tech sector), combined with foreign currency selling by institutional bodies due to the continued market rises (they sold $14 billion in the past six months) and sales of foreign currency (to buy shekels) by foreign organizations led last week to the renewed sharp strengthening in the shekel rate."
Shafrir added, "The Bank of Israel's comments in the most recent protocols about the interest rate decision that the very aggressive foreign currency purchasing program that was launched in 2021 will probably end this year, and that from next year the Bank of Israel will revert to buying foreign currency 'according to the state of the market' and the condition of the economy, have strengthened the estimations of local and foreign bodies that the shekel will strengthen towards the end of the year - a fact that probably increased foreign currency sales last month."
Energy Finance CEO Yossi Frank stresses that not all the money from exits was converted and some has been used to acquire companies. "The massive amount of capital raised in high-tech was not converted to shekels. We see large companies using the money to acquire companies and increase activities abroad, so that a lot of the money raised wasn't converted into shekels at all."
Regarding the Bank of Israel's plan to continue intervening beyond the foreign currency purchasing plan Frank said, "The market is looking for actions and if the shekel has strengthened 3% over the past two weeks for no reason and the Bank of Israel doesn't react, then market traders are sure that these are idle threats."
Frank added, "The dollar is very strong worldwide, and stock markets are virtually unchanged over the past two weeks, and the Bank of Israel has fallen asleep on its watch. There is a speculative attack here like there was at the start of January because the market believes that in contrast to what the Bank of Israel declares, it has run out of ammunition and so it's possible to attack the shekel. There is nothing more dangerous in a currency market than a loss of credibility, and what you are seeing at the moment is exactly the result."
Published by Globes, Israel business news - en.globes.co.il - on August 4, 2021
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