BoI waits in the wings as shekel gains continue

Shekel Photo: ASAP Creative

The shekel's nominal effective rate against a basket of the world's 26 major currencies has strengthened 5% this year.

The Bank of Israel continues to watch from the sidelines as the shekel continues to strengthen against all the world's major currencies. Last year the Bank of Israel ended its program to purchase foreign currency to offset the effect of natural gas sales and in all of 2019 it has only purchased $100 million in foreign currency.

Meanwhile the shekel's nominal effective rate against a basket of the world's 26 major currencies with which Israel does most trade, fell 0.104%, to its strongest ever level. The shekel's nominal effective rate has strengthened 5% in 2019 and some exporters are struggling to sell goods.

Dr. Adam Reuter, chairman of Financial Immunities, which manages forex risks for companies, urges the Bank of Israel to resume its foreign currency purchases. He says, "The Bank of Israel can buy $5.2 billion on the market, while still maintaining a 33.3% ratio of reserves to GDP." (In line with its stated policy that forex reserves should not exceed 33.3% of GDP).

The shekel is again strengthening today against the dollar and against the euro. In early afternoon inter-bank trading, the shekel-dollar exchange rate is down 0.24% against the dollar at NIS 3.563/$ and down 0.29% against the euro at 4.021/€.

Yesterday, the Bank of Israel set the shekel-dollar representative rate down 0.084% at NIS 3.572/$ from Tuesday, and set the shekel-euro rate down 0.163% at 4.033/€.

The shekel is moving towards the key NIS 3.558/$ level. Since the beginning of February, the Israeli currency has moved through a narrow trading band of less than 3% between NIS 3.558/$ and NIS 3.66/$. Should the rate fall below NIS 3.558/$, this would be the strongest level for the Israeli currency since April 2018, and could be a psychological trigger for the shekel's appreciation to gain momentum.

Published by Globes, Israel business news - en.globes.co.il - on July 4, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Shekel Photo: ASAP Creative
Shekel Photo: ASAP Creative
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