"The shekel is strong and is in our opinion overvalued," Bank of Israel Governor Dr. Karnit Flug told the "Globes" Business Conference in Jerusalem today. Flug admitted that part of the explanation for the strengthening of the shekel in recent days is the activity of speculators on the foreign currency exchange market, including algorithm traders working with large amounts according to mathematical models.
Her words supported sentiment on the foreign currency trading market that there has been a dramatic increase in speculators selling dollars since the shekel broke below the NIS 3.50/$ barrier. Since the start of 2018, the shekel has strengthened by more than 1% against the basket of currencies, and not only the dollar, and it is trading close to record lows in recent times.
Flug stressed that the shekel is also strong because of the good performance of the Israeli economy but added, "We have recently seen another type of appreciation. Part of that is the strengthening of the dollar but there is certainly an effective appreciation. It may also delay our return to our inflation target. In response to the recent appreciation, which is a little surprising due to the interest rate hike in the US, we have returned to large scale intervention in the market. We have located operations by players that aren't actually linked to real operations and these are traders with models and we have intervened within this context."
Your predecessor intervened in the foreign currency market. Ten years have passed but the problem has not been solved even though the Bank of Israel has accumulated many billions. The shekel is today considered the most expensive currency.
Flug said, "First of all it's correct that the shekel is strong and in our estimation overvalued in part because of expansionist policies that are being implemented. So if we did not think we would be intervening for so many years, we also did not think that we would retain negative interest for so long. The shekel is strong because of basic influences but overall performance is good and we have full employment but more than that there is the influence of the central bank and we want to offset through foreign currency intervention."
Published by Globes [online], Israel business news - www.globes-online.com - on January 11, 2018
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