Dollar hits three-year low against shekel

Excellence Nessuah report: Entire industries will be wiped out.

By GUY KATSOVITCH / GLOBES
June 6, 2011 23:23
3 minute read.
shekel and dollar

shekel versus dollar 521. (photo credit: REUTERS)

 
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The shekel strengthened against the dollar but weakened against the euro in morning interbank trading Monday.

After the shekel-dollar exchange rate fell 2.5 percent last week to a one-month low, the exchange rate fell a further 0.54% in morning trading to NIS 3.369 – the lowest rate since the exchange rate reached NIS 3.344 on July 16, 2008.

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The shekel fell 0.1% to 3.3720 by 5:16 p.m.

The shekel weakened against the euro on reports of a new bailout package for Greece. The shekel-euro exchange rate rose 0.52% to NIS 4.933.

Excellence Nessuah chief economist Shlomo Maoz, in an interview Monday with Globes, attacked the Bank of Israel for its last interest-rate hike. He said the 0.25% rise to 3.25% was the reason for the appreciation of the shekel, which would lead to severe damage to the economy.

“Since the Bank of Israel’s mistaken decision to raise interest rates on May 23, the shekel has appreciated by 2% against the effective currency basket of 28 currencies of Israel’s trading partners,” he said. “As I have said before, this decision was hasty and wrong, in light of the low interest rates in Western countries, the crisis in Europe, the economic slowdown in the US, and the fear of a crisis in China.


“Other countries also have high inflation rates, as in Europe and Britain, and despite that they have not raised interest rates there. Although strong activity in the Israeli economy has led to inflation, this inflation is mainly in housing.

Raising interest rates cannot by itself stem the rise in the cost of housing, only administrative measures such as those proposed by the Finance Ministry can.”

Globes: But Bank of Israel Governor Stanley Fischer said recently that exports continue to grow and there is no substantial damage? Maoz: “Raising the interest rate and deciding that the currency appreciation is for the time being not affecting exports, which continue to grow, is like the man who fed his horse three times a day at first, then twice a week, and then once a week, until the horse died. There is damage to the competitiveness of the economy, and appreciation of 2% over such a short period will cause harm.”

Can Fischer afford not to raise interest rates, given the real-estate bubble? “Housing prices are no longer rising in central Israel. Interest rates have risen to 3.25%, and now we have to stop and take a breather. The economic slowdown in the US does not allow a rate hike, at least until the second quarter of 2012. Any further increase in interest rates will cause further appreciation of the shekel.“ Where will the shekel-dollar rate get to at this pace? “My forecast is for 3.28 shekels to the dollar this summer. In my view, the Bank of Israel has realized its error and will not raise interest rates next month. It will lick its wounds and return to intervention in the foreign exchange market, although the effect of intervention is weakening because the interest-rate differential between Israel and the US stands at 340 basis points on Treasury bonds. Entire industries will be wiped out in Israel because of this interest-rate differential. Any factory that leaves will not come back.”

According to Bank of Jerusalem foreign- currency manager Eitan Admoni: “It seems that the interest-rate hike two weeks ago, which continued the trend of recent months, combined with the especially optimistic growth forecasts published this week, have resulted in the shekel-dollar rate having few alternatives but to weaken. The dollar is also suffering from difficulties and weakness in international markets. We believe that the dollar will continue to weaken this week and in the coming weeks, and we see no substantial correction on the horizon, at least not on the economic side. We expect the shekel-dollar exchange rate to be NIS 3.323-3.382 this week.”

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