After several weeks during which exporters and manufacturers watched in dismay as the value of the dollar eroded, the Bank of Israel has taken action, buying more than $250 million, Globes reported.
The shekel-dollar exchange rate climbed back to NIS 3.5029/$ on Sunday, compared to NIS 3.489/$ a week ago. The BOI purchase was made last Thursday.
However, it is widely believed that a different order of intervention is needed to restore stability to the market.
For the first time, former deputy governor of the Bank of Israel Prof. Zvi Eckstein publicly expressed support for the setting of an exchange rate floor.
“According to my analysis, there is room for setting a shekel-dollar exchange rate floor at NIS 3.30-3.40/$. The exchange rate floor must be part of a Bank of Israel strategy for supporting the second objective – support for growth and jobs under the constraints of the inflation target,” he told Globes.
FXCM Israel said that Thursday’s BOI action will not stem the trend of the rising shekel.
“What dictates movement in the foreign exchange market is the correlation between currencies and risk sentiment, and under these conditions, the dollar is in an inferior position because of its negligible interest rate,” it said. “Therefore, if we see stock prices rising further at the start of the year, the dollar will continue to weaken against other currencies, including the shekel, despite the tapering of quantitative easing and rising confidence in the American economy. The shekel-dollar exchange rate has already fallen below the September low and its momentum is taking it toward NIS 3.40/$ and lower.”
Manufacturers Association of Israel president Zvika Oren earlier in the week called on the Bank to declare a temporary exchange rate floor of NIS 3.80/$.
But such proposals have not found a receptive ear at BOI. In a recent meeting with Governor Dr. Karnit Flug, Oren raised the issue.
“The governor mostly listened, and did not express her opinion on the matter,” he said. “I don’t understand how she allows the dollar to fall as it has fallen for a long time. The Bank of Israel has the power to establish a permanent exchange rate through massive dollar purchases, taxing speculators, expand the hedging of Israel debts, and cutting the interest rate by 25 basis points.
“These measures would inject oxygen into the exports and tourism industries. International markets are expected to grow 5 percent this year, and with including to reduce regulations and improve the business environment, Israel could benefit from the global growth and share in it.”