The shekel is at a 15-month high against the dollar, with the shekel-dollar exchange rate below NIS 4.60/$ for the first time since February 2002. The end of the war in Iraq, and yesterday’s recommendation by the Ministry of Finance Capital Market, Insurance, and Savings Division to sell foreign currency and buy shekels, have favored a strong shekel.
The shekel-dollar representative rate slid 1.46% to NIS 4.59/$ yesterday, the sharpest shekel appreciation in a long time. The shekel has appreciated 5% against the dollar since December 2002. The shekel also rose 1.82% against the euro to NIS 4.9322/$, 2.2% against the Japanese yen, and 1.2% against the pound sterling.
The steep shekel appreciation will force the Bank of Israel to lower the interest rate more rapidly, by 0.3-0.4%. The large gap between the shekel and dollar interest rates support the conversion of foreign currency into shekels, in order to invest in unlinked shekel instruments.
First International Bank of Israel chief economist Hezi Gutman says the shekel-dollar rate could conceivably fall to NIS 4.50/$. “It’s hard to say where the exchange rate is going, but $4.50/$ is possible, perhaps even by the end of the Passover holiday,” Gutman told “Globes”. “At the same time, many things must occur for the exchange rate to reach that level, and it’s not very likely.”
Gutman believes that under current conditions, Governor of the Bank of Israel David Klein has the necessary maneuvering room to lower the interest rate. Nevertheless, he does not expect Klein to lower the interest rate by more than a moderate 0.2-0.3%.
Published by Globes [online] - www.globes.co.il - on April 14, 2003