'Dollar has moved against us'

Bank of Israel governor urges exporters to start reorienting themselves.

stanley fischer 1 88 224 (photo credit: Ariel Jerozolimski)
stanley fischer 1 88 224
(photo credit: Ariel Jerozolimski)
The Bank of Israel intervened in the foreign exchange market on Thursday for the first time since 1997, buying an undisclosed amount of foreign currency as the shekel-dollar exchange rate fell below the psychological barrier of NIS 3.40. The move is designed to stem the recent decline in the dollar against the shekel, before it causes serious damage to the economy, in particular to the export sector. "In light of the exceptional behavior of the shekel exchange rate over recent days, the central bank bought foreign currency," the Bank of Israel said in a statement on Thursday afternoon, while declining to provide further details. Speculations in the market estimated that the central bank probably bought between $50 million and $100m., but in any case not more than $200m., in foreign currency. The move by the Bank of Israel came as a surprise, since over the past couple of months Governor of the Bank of Israel Stanley Fischer reiterated the bank's stance in favor of a free market for the shekel, rejecting urgent calls by exporters to intervene to ease the sharp plunge of the shekel-dollar exchange rate hurting their profits. "What's going on now is that the dollar has moved against us. Indeed, it's moved against everybody in terms of exports," Fischer said in an interview with The Jerusalem Post to be published next week. "Against the euro we haven't strengthened so much, so the European market looks better, and there is growth in Asia. So the exporters have to start reorienting [themselves], without being so extremist as to forget that there will continue to be a huge market in the US, in a year from now when the recovery starts." Fischer added that the exporters have well understood what they have to do and that data showed that they were "reorienting" to the new dollar rate. Capital market analyst Prof. Rafi Eldor of the Interdisciplinary Center, Herzliya said on Thursday that "the Bank of Israel cannot deal with a 'speculative attack' on the shekel-dollar exchange rate on its own. To have an impact, the central bank would have to make regular purchases of millions of dollars." Eldor added that in 1997, when the central bank first interfered in the level of the shekel, it had to make regular purchases of $20m. to keep the shekel-dollar exchange rate at NIS 4. The bank's announcement came as the shekel-dollar exchange rate dropped more than 2 percent, to an 11-year low of NIS 3.34 in early trading on Thursday. Following the announcement in the afternoon, the dollar strengthened slightly, trading at NIS 3.43. "The dollar continues to fall to new record lows against the shekel and the euro," said Benny Menashe, head of the dealer room at Finotec. "Investors are losing confidence in the rescue solutions by the US Federal Reserve to help dampen the repercussions of the US subprime mortgage crisis and avert a recession in the US economy." Since the middle of December, the shekel has appreciated 16% against the dollar, even after the Israeli central bank cut interest rates by half a percentage point to 3.75% on February 25. "We've had a dollar-selling wave, which was triggered after it broke a nine-year low Monday morning," said Neil Corney, head trader at Citi Israel, a subsidiary of Citigroup Inc. "There was a realization that even though the Bank of Israel has cut its rate, the interest gap with the US is still widening." Over recent months, Fischer and the Finance Ministry have come under heavy pressure from Manufacturers Association President Shraga Brosh to take urgent action to stem the sharp slide of the shekel-dollar exchange rate and avert a "national disaster" in the export sector. If nothing was done, the manufacturers said, industry was poised to lose $3.5 billion worth of orders and 30,000 jobs this year. Bloomberg contributed to this report.