The shekel strengthened sharply today against the dollar and against the euro after FTSE Russell announced that Israel gov't bonds are to be included on the World Government Bond Index (WGBI) from April 2020. The Bank of Israel set the shekel-dollar representative rate down 0.995% at NIS 3.482/$ from Thursday's rate, and set the shekel-euro rate down 1.009% at 3.805/€. There will be no new representative rate set until next Wednesday, after the Rosh Hashana, Jewish New Year holiday.
The shekel is stronger because inclusion in the WGBI will increase trading in Israeli government shekel linked bonds and the need to convert foreign currency to shekels in order to purchase them. Bank Leumi chief economist and Gil Buffman and other analysts see Israel's 0.29% weight in the index translating to foreign currency purchases in shekels of government bonds worth about $2 billion.
Meanwhile the Manufacturers Association has attacked Bank of Israel Governor Prof. Amir Yaron for not cutting the interest rate and his policy of not intervening in the foreign currency market to purchase foreign currency and weaken the shekel, thus helping exporters.
Unlike his predecessors who built up Israel's foreign currency reserves to nearly $120 billion, through such foreign currency purchases, since taking office in December, Yaron has sat on the sidelines and watched the shekel strengthen.
The Manufacturers Association said in a statement, "The fall in the shekel-dollar rate combined with the forecast of a slowdown published by the OECD, the deficit that is not being dealt with and the government paralysis might bring Israel into recession in the coming months. To our regret the indifference of the Bank of Israel in recent month, in contrast to what is being done by other central banks throughout the world, will accentuate the economic harm that all Israeli citizens will feel. The Governor must not wait for the next interest rate decision but take an immediate decision regarding cutting the rate and intervening in foreign currency exchange and any other tool that he might find it right to use to prevent this deterioration.
The Manufacturers Association says that since the start of 2019, the shekel has strengthened 7% against the dollar, 11% against the euro and 10% against sterling.
Published by Globes, Israel business news - en.globes.co.il - on September 27, 2019
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