Even the collapse of the coalition and the calling of new elections in March cannot stop the appreciation of the shekel. The shekel continues to strengthen today against the dollar and against the euro. In late morning inter-bank trading, the shekel was down 0.13% against the dollar at NIS 3.218/$ and down 0.10% against the euro at NIS 3.925/€. The shekel also continues to strengthen against the basket of major currencies, which reflects Israel's main export markets.
Yesterday, the Bank of Israel set the representative shekel-dollar rate 0.371% lower from Tuesday, at NIS 3.222/$, and the representative shekel-euro rate was set 0.635% lower, at NIS 3.929/€.
Analysts told "Globes" that the continued strengthening of the shekel despite the political chaos proves that the markets no longer give any weight to the instability of the political system in Israel and the delays in passing a budget. Mizrahi Tefahot chief strategist Modi Shafrir wrote, "The continued appreciation of the shekel over recent days and the fall in yields on the bond market demonstrate that the markets in Israel are not sensitive to more elections."
The Bank of Israel is not expected to change its policies despite the continued strengthening of the shekel. In the first eleven months of 2020, the Bank of Israel has purchased $17 billion in foreign currency, the highest amount for any year since 2009 but this has not halted the shekel's gains. The Bank of Israel explained several days ago that its strategy is designed to 'buy time' for industry and exporters to adjust themselves to the new exchange rate environment. Bank of Israel Governor Prof. Amir Yaron told the Eli Hurvitz conference on society and the economy last week that, "The shekel is strengthening for a range of reasons, including good ones, and we are working to moderate the pace and ensure that it does not strengthen beyond the dynamic window that we have set."
Shafrir says that Israel is not expected to have its credit rating cut following the collapse of the government coalition and the upcoming new elections. "The strengthening political uncertainty and new elections are for sure not positive news for the Israeli economy and its future rating. As well as new elections, the passing of important reforms for the Israeli economy will be delayed. That said the Knesset's approval of the special instructions passed by the cabinet on Tuesday regarding the transition from the 2020 to 2021 budget will allow the operation of regulations by government ministries in the first half of the year including budgets allocated for handling the Covid-19 crisis. The Israeli economy will be influenced in the coming year mainly by the pace in the spread of the virus on the one hand, which will mainly affect activities in the first quarter, and the effectiveness and speed with which the vaccinations are administered, on the other hand.
Published by Globes, Israel business news - en.globes.co.il - on December 24, 2020
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