The representative shekel-dollar exchange rate fell 0.47% on Friday to NIS 3.5990/$, its lowest level since July, while the shekel-euro rate fell 0.22%, to 3.9616. The shekel weakened sharply at the start of the Swords of Iron war in the Gaza Strip in October, but it has steadily strengthened since then.
Why has the shekel strengthened so much. "The reasons are mainly local," Mizrahi Tefahot Bank chief economist Ronen Menachem told "Globes". "In the past few days, many doubts have been raised about the state budget. Several times last week, Governor of the Bank of Israel Amir Yaron spoke about the need for a balanced budget and the exercise of judgment in the government concerning the way the money is distributed." These doubts about the budget and the fiscal deficit, Menachem says, lead the market to believe that the Bank of Israel will find it hard to cut interest rates.
"The threat from the Houthis to cargo ships in the Red Sea brings with it fears of inflation. It raises cargo tariffs and thus the prices of imported products. The Bank of Israel will want to keep its interest rate high when inflation could rear its head again because of this threat."
Moreover, Menachem points out, the Bank of Israel has still not abandoned the program of selling up to $30 billion in foreign currency that it announced at the beginning of the war in order to stabilize the shekel. "Although it did not sell large amounts of dollars last month to stabilize the shekel, the possibility cannot be ruled out that the Bank of Israel will continue to act in the market if it sees reason to do so."
On the eve of the war, the shekel was traded at NIS 3.85/$. As the Israeli currency continues to strengthen, it is becoming apparent that the market was more concerned about the social rift in Israel caused by the government's planned judicial reform than it is by the war with Hamas.
EFG foreign exchange strategist Alim Remtulla sees the shekel strengthening to NIS 3.55-3.60/$ in the first quarter of 2024, which among other things will bring Israeli investment institutions back to the Tel Aviv Stock Exchange.
Published by Globes, Israel business news - en.globes.co.il - on December 24, 2023.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.