Lehman Brothers analyst Elise Horowitz, in charge of the Israel region, assesses that the dollar will weaken in the coming months against the shekel. Horowitz assesses that the dollar will calm down in the next few weeks and will trade at a level of NIS 3.95 at the end of 1998.
Horowitz notes that dollar demand last week did not emanate from speculative concerns, as the Israeli capital market estimated. The demand, according to her, arose from natural motives such as uncertainty regarding the world crisis, realisation of stock market holdings by foreign investors, fears that a tax will be imposed on shekel instruments and hedging purchases by the business sector, most of which has foreign currency credit exposure.
Horowitz estimates that the Consumer Price Index for September, published today, will rise by 1%-1.5%. The October index will depend on the exchange rate levels of the shekel against the various currencies during the month. Assuming that the dollar will be traded in October at NIS 4.2-4.3, Horowitz expects the Consumer Price Index in respect of October to shoot up by 3%. If the dollar remains at the same levels until the end of the year, Horowitz estimates that inflation in 1998 will reach 6%, lower than the 7%-10% target set by the government.
Horowitz moreover estimates that it is inevitable that the Governor of the Bank of Israel will raise the interest rate. In her assessment, if the September index approximates 1%, the Governor will raise the interest rate next week by 0.5% and in November by another 0.5%. If the September index is closer to 1.5%, or higher, Horowitz expects the interest rate to climb by 1.5% in the next two months.
Published by Israel's Business Arena October 15, 1998