Shekel Weakens, Bank of Israel Mum


The shekel weakened against the dollar in trading on Thursday, as the exchange rate broke through the 3.5 barrier after several days below it.

FXCM Israel said, “After two days in which the shekel-dollar exchange rate succeeded in staying above the September low of NIS 3.473/$, sellers have broken and the exchange has climbed back above NIS 3.50/$, despite the dollar’s weakness in international markets. It is possible the fact of a possible intervention by the Bank of Israel at these levels deterred short traders.

“There is great uncertainty over the Fed’s next steps, and this picture might clarify next week, determining the direction of the dollar. The shekel-dollar exchange rate touched NIS 3.52/$ yesterday before falling back. If the exchange rate can establish itself above NIS 3.50/$, and climb toward NIS 3.52/$, this could pave the way for a larger correction, in which case the next resistance level will be NIS 3.545/$. Movement below NIS 3.50/$ could again put downward pressure on the exchange rate,” FXCM added.

Meanwhile, Minister of Finance Yair Lapid was urging Governor of the Bank of Israel Dr. Karnit Flug to increase dollar purchases, sources informed Globes.

Lapid reportedly consulted earlier this week with former Bank of Israel governor Stanley Fischer, but received little encouragement. “Fischer told Lapid that little could be done, and that he should hope that the Americans will begin the tapering of the QE3 soon, as this will ease pressure on the dollar,” an official in Lapid’s office said.

The Bank of Israel is uncommunicative on the subject. Asked by Globes if there are contingency plans for dealing with the dollar crisis, its spokesman said, “No comment.”

The Bank of Israel asked the Ministry of Finance to eliminate the tax exemption for foreign investors on capital gains on transactions in Shahar unlinked government shekel bonds. Currently, Israelis pay a 15% tax on these transactions.

The Ministry of Finance has reportedly relented in its opposition to the idea. A Ministry official noted that the BOI attaches great importance to canceling the tax exemption on foreign investors as a solution to the exchange rate problem. But he said that even if the exemption was canceled, it would only have a negligible effect on the shekel-dollar exchange rate.

Officials at both institutions maintain that little can be done about the exchange rate, and that, furthermore, its current level is actually reasonable.

“If you take into account that there is a huge surplus in the current accounts because of the large inflows of foreign currency, mainly through foreign direct investment, Israel’s strong economy, and the natural gas, I don’t think that movement between NIS 3/$ and NIS 4/$ is reasonable,” a top Ministry of Finance official said.