The shekel has opened the week stronger against the US dollar and against the euro even though the war against Hamas has moved up a gear as the IDF entered Gaza on Friday night. In inter-bank trading, the shekel-dollar rate is down 0.58% at NIS 4.058/$ and the shekel-euro rate is down 0.62% at NIS 4.281/€.
On Friday, the Bank of Israel set the representative shekel-dollar rate up 0.049% at NIS 4.081/$, and the representative shekel-euro rate was set 0.237% higher at NIS 4.308/€. The shekel-dollar rate has not traded at such rates since 2012.
Despite the weakness of the shekel, it seems that over the past week the rapid depreciation of the Israeli currency has been moderating. Thus, while since the start of the war on October 7, the value of the shekel decreased by 6% against the dollar, last week the depreciation of the shekel was only 0.3% and this morning the shekel is strengthening by over 0.5%. The depreciation has been partly offset by the Bank of Israel's intervention in the forex market. At the start of the war, it announced that it was allocating up to $30 billion of its foreign currency reserves to purchase shekels.
Mizrahi Tefahot chief economist Ronen Menachem says, "We see the slowing down of the depreciation of the shekel exchange rate. Scenarios on the effects of the war on the economy were published by various agencies in recent days and most of them estimated that the more likely scenario is for a limited war in the south over three months, which would allow the economy to recover within a year from the end of the war. Of course, the level of uncertainty surrounding these scenarios is very high, but at the moment this is what is being thought."
"At the start of the war the depreciation was exceptional"
Meitav Dash chief economist Alex Zabezhinsky tells "Globes," "If I look at the change of the shekel last week, it was not so unusual compared to other currencies, while at the beginning of the war the depreciation was exceptional, but now it is weakening at a more moderate rate."
Zabezhinsky points out that there is a moderation in the depreciation of the shekel because Israel's main scenario, in which the war continues until the end of the year and will focus on the southern region contributes to the moderation of the devaluation, "The existing concern is already contained in the depreciation of the shekel, and as long as there is no new incident then the depreciation will moderate."
Another moderating factor in the forex market is of course the Bank of Israel. Menachem says, "It appears that the Bank of Israel is doing as it said it would in the foreign exchange market. It is not possible to estimate the amounts and timings and it is good that there is ambiguity on this issue, but it can be seen that since the announcement by the bank, the shekel has depreciated by 3.3% against the dollar. This is a relatively low rate, in my opinion, considering other factors, such as a slight appreciation of the dollar against the euro, the security incidents and the assumption that the consequences of the Bank of Israel's purchases of shekels against its foreign exchange balances will be gradual."
Zabezhinsky stresses that the depreciation of the shekel does not demonstrate a lack of success in the Bank of Israel's intervention of the foreign exchange market. He explains, "The aim of the Bank of Israel was never to cause an appreciation in the exchange rate, but to stabilize its volatility, to ensure that trading is regular and has liquidity." The volatility of the dollar exchange rate would have been much greater without the intervention of the Bank of Israel, Zabezhinsky points out.
Menachem asserts that looking ahead there are still many conflicting influences surrounding the shekel, so that "even if the recent sharp depreciation in the shekel exchange rate does moderate, its volatility will remain high, both between trading days and within days. The actions of the Bank of Israel will strive to limit this volatility."
Zabezhinsky adds optimistically note that we will see the shekel strengthen, "The moment the market can recognize signs that the war is coming to an end and is not expanding any further."
Published by Globes, Israel business news - en.globes.co.il - on October 30, 2023.
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