Shekel falls to three-year low

The shekel lost 0.5% of its value against the dollar since Friday afternoon, bringing the total depreciation to 2.2% since Peretz's election Thursday.

shekels good 88 (photo credit: )
shekels good 88
(photo credit: )
The shekel fell to NIS 4.7428 per US dollar by the end of trading Monday, as political uncertainty accelerated its downward tendency of the past couple months. "There is essentially concern that the Labor Party is getting stronger. The market is opposed to the return of Bolshevik [economic] practices," commented Shlomo Maoz, chief economist at Excellence Nessuah. "While [newly elected Labor head Amir] Peretz assures that there will be a 'free market,' he has also expressed his desire to intervene in the minimum wage and take other measures." The shekel lost one-half percent of its value against the dollar since Friday afternoon, bringing the total depreciation to 2.2% since Peretz's election Thursday. The dollar last rose above NIS 4.74 on March 21, 2003, and had stayed below NIS 4.7 since the end of that month. Concerns regarding Peretz's economic politics will chase investment from Israel and send capital abroad if realized, leading to further devaluation, Maoz warned. He nonetheless predicted that for now the shekel will not hit the NIS 4.8-per-dollar mark, and may already be at the end of this round of devaluation. The shekel could gain more ground against the dollar next month, once the interest rate is raised, he suggested. GIFT Asset Management CEO Norbert Brinker predicted that the shekel would stabilize at around NIS 4.8, before regaining value, noting that "intensive buying" stimulated by the political uncertainty is fueling the dollar's gain. The frenzy will end in profit-taking once indicators signal that the rise is at its end. GIFT economists are anticipating that the consumer price index to be released on Tuesday will indicate a roughly 0.7% inflation surge in October. Together with July's surprise 1.1% rise and more moderate price growth before and since - bringing inflation to 1.9% for the 12-month period ending in September - inflation would then be moving closer to the upper limit of the Bank of Israel's 1%-3% "price stability" target for the year. The central bank will react by raising the interest rate by more than one-quarter of a percentage point, above 4.25%, at the end of the month, Maoz predicted. Brinker sees a one-half percentage point rise in interest over the next two months. While a full 0.5-point rise now would signal that the central bank is keeping its eye on the market and seeking to curb currency speculation, the central bank would nonetheless prefer to keep interest rates low enough to avoid hurting the stock and housing markets. At the end of October, Bank of Israel Governor Stanley Fischer rose the interest rate 0.25 point to 4%, in anticipation of the identical raise in the US interest rate made November 1.