(photo credit: Bloomberg)
The dollar hit a new two-and- a-half year low in early currency trading on
Monday, as analysts predicted that it could fall to as low as NIS 3.35 if the
Bank of Israel continues to raise interest rates.
By late Monday
afternoon the dollar was trading at NIS 3.466, after falling to NIS 3.450
earlier in the day, its lowest mark since September 30, 2008.
purchasing more than $200 million on Sunday, the Bank of Israel bought another
$100m. on Monday morning as it attempted to counter the dollar’s fall. However,
foreign- exchange dealing rooms reported aggressive sales by foreign banks and
hedge funds, a continuation of the massive selling of dollars in recent
Last Monday the central bank announced that it had increased the
interest rate for April by 0.5 basis points to 3.0 percent as it focused on
fighting high inflation, defying the consensus among economists that it would
only raise the rate by a quarter-point. Inflation rose by an annualized 4.2% in
February, its fastest pace in more than two years.
The dollar could fall
to as low as NIS 3.35 sooner than everyone expects, if Bank of Israel Governor
Stanley Fischer surprises everybody and raises the interest rate by another 0.5%
in May, Meitav Investment House chief economist Ron Eichal told The Jerusalem
The April rate rise had “decreased immediate pressure for
[more] rate rises,” he wrote in a report. The continued growth in housing prices
would be a decisive factor in Fischer’s next decision, he wrote, and “one could
not rule out another [interestrate] rise in the event that there will be
negative inflationary developments.”
Israeli financial-markets trading
firm USG Capital predicted that the exchange rate would approach NIS 3.40 over
the next three months in light of the growing gap between the shekel and dollar
“We expect that foreign capital will continue to pour
into Israel, despite the Bank of Israel’s sanctions against foreign investors,”
USG Capital analysts Shay Zakhaim and Eli Ben-David wrote in a report. “We will
see the shekel strengthen against all the currencies in the basket.”
said the interest rate could rise by another 0.25% in May, and there will be
further rate rises every month if inflation continues to
Meanwhile, Manufacturers Association of Israel president Shraga
Brosh wrote a letter to Prime Minister Binyamin Netanyahu on Monday, in which he
urged him to take fiscal measures to weaken the shekel.
this dangerous situation is the responsibility of the prime minister,” he wrote,
adding that manufacturers had lost some $11 billion in deals since 2006, due to
the 25% appreciation of the shekel against the dollar in the same
“We ask for a special meeting of the social-economic cabinet to
be convened to discuss the dangers and the implications of the strengthening of
the currency and to decide on a series of immediate measures to strengthen the
competitiveness of the Israeli economy,” Brosh wrote.
effort by the governor of the Bank of Israel against this trend succeeded in
curbing the damage and helping the business sector,” he added. “However, due to
the rise in inflation expectations, the governor has been forced to focus on the
fight against inflation, which has greatly limited his ability to help in
weakening the shekel.”Globes contributed to this report.