The shekel is at its strongest ever level, according to the Bank of Israel's nominal effective rate, which measures the shekel against the basket of currencies of Israel's major trading partners. Meanwhile, the Bank of Israel set the representative shekel-euro rate today at NIS 3.695/€, down 0.295% since yesterday, and putting the shekel at its strongest against the euro since 2001. The shekel-dollar representative rate was set 0.188% lower, at NIS 3.185/$, the shekel's strongest level against the dollar in over 10 months.
Israeli consumers will be able to find attractive prices on overseas e-commerce sites, although supply chain problems worldwide might make dollar prices higher than they might otherwise have been.
Prico Risk Management and Investments CEO Yossi Fraiman said, "This is not good news for exporters working on small margins. Among the reasons for the shekel's strength is lively activity on the part of financial institutions reducing their currency exposure, resulting in surplus supply of foreign currency. Israeli companies that held public offerings on overseas markets together with foreign investment bodies operating on the bond market have also created a large supply of foreign currency. On top of these two significant factors, exporters receiving currency for their exports need shekels to make upcoming salary payments."
Fraiman added, "The strengthening of the shekel encourages imports from Europe, and that is very problematic. European imports represent 27% of Israeli imports, compared with the dollar which represents 20%. This encourages trade with the European countries, China and Japan. At the same time, the appreciation has eased the upward pressure on prices, and reduced Israel's inflation compared with the world."
The Bank of Israel has taken its foot off the pedal in terms of purchasing foreign currency to moderate the strengthening of the shekel. This is because conditions in the global economy have changed since the launch of its foreign currency purchasing program in January, with inflation rearing its head and inflation expectations at a 10-year high.
Mizrahi Tefahot Bank chief strategist Modi Shafrir told "Globes," "Even though the Bank of Israel has already purchased close to $30 billion this year, the shekel has strengthened since the start of 2021, by close to 3% against the basket of currencies, mainly due to 'basic forces' supporting the long-term strengthening of the shekel - a huge amount of direct investment in Israel, mainly in the high-tech sector, and a sharp rise in the current account surplus, among other things because of the jump in high-tech services exports.
"In addition, the sharp rises on stock exchanges around the world have supported the strengthening of the shekel, since this has led to massive foreign currency sales by institutions - pension and provident funds in Israel. Moreover, in the most recent interest rate decision, the Governor made it clear that the Bank of Israel will end its 'various quantitative expansion programs in the coming months.' In other words the Bank of Israel is expected to significantly reduce the amount of its foreign currency purchases in 2022, another fact which is already supporting the strengthening of the shekel."
Marian Cohen, president of the High-Tech Association of the Manufacturers Association, said, "The constantly strengthening shekel against the dollar and the euro hurts Israel's high-tech industry. The industry is not just built on a small number of startups that raise or are sold for astronomical sums, but mainly consists of exporting companies that provide a living, considering those directly affected alone, to over 370,000 households in Israel, and support the economy of the country. The high-tech industry accounts for more than half of Israel's exports, and industrialists are the first to be harmed by the appreciation of the shekel."
Published by Globes, Israel business news - en.globes.co.il - on October 28, 2021.
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