The shekel has strengthened against the major currencies at the opening of the week's foreign exchange trading this morning. The shekel-dollar exchange rate is currently down 0.36% in comparison with Friday's representative rate, at NIS 3.6865/$, and the shekel-euro rate is down 0.32%, at NIS 4.266/€.
According to Prico Group CEO Yossi Fraiman, the raising of Israel's sovereign credit rating by S&P to AA- will have a considerable impact on the foreign exchange market. "The raising of Israel's credit rating is a very significant event for the foreign exchange market in Israel, chiefly because a rating in the AA group puts Israel into the investment category for countries and very large investment institutions around the world, opening the door for significant amounts of new capital investment," he writes. "The money will not flow to Israel immediately, but in the medium and long term Israel will see considerable capital inflows for investment in bonds, stocks, and startups.
"The big money that will flow to Israel in the coming years will support demand for the shekel and lead to further strengthening of the shekel against the basket of currencies. We estimate that the Bank of Israel will need to increase its involvement in the local foreign exchange market in the coming years. In the short term, the rating upgrade creates sentiment in favor of a stronger shekel, after the shekel-dollar rate rose to NIS 3.7/$ on Friday. In a period in which the Bank of Israel is limited in the means it has available in the foreign exchange arena, and the reserves are close to their ceiling in terms of reserves/GDP, the rise in the shekel-dollar rate presents the Bank of Israel with a golden opportunity to calm the markets and increase the means at its disposal by selling some of its reserves of foreign currency."
Yaniv Hevron, chief strategist at investment house Alumot, sees the rating upgrade by S&P as having no impact on Israel's real economic problems. It is "no more than winning a beauty contest", he writes, pointing out that although it may enable the Israeli government to raise debt on international markets at lower interest rates, this will have little effect on an economy in which 95% of the debt is held by local investors.
"The rating upgrade will not support exports, will not improve industry, will not solve the severe crisis at the National Insurance Institute, will not reduce the cost of living, will not reduce inequality, will not reduce consumer credit leverage, and will not solve the crisis in the housing market. Moreover, it was not what led to the rises on the stock market yesterday, despite the headlines to that effect," Hevron writes.
Published by Globes [online], Israel business news - www.globes-online.com - on August 6, 2018
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