Whatever they think of Israeli politics, customers and officials of HSBC love the shekel, the bank said in a new report – so much so that the bank expects a massive rush of investors to the shekel, to the extent that the Israeli currency will soar against the dollar. “The Israeli shekel is one of our preferred currencies” in the CEEMA (Europe, Middle East, and Africa) regions, the bank’s report said. “We believe that the dollar-shekel rate will break through the NIS 3.75/dollar barrier and eventually reach NIS 3.60 or NIS 3.65 per dollar level.”
The Bank of Israel will try to prevent this, the report said – unsuccessfully. “The changes will definitely come to pass over the next 12 months, despite BoI intervention,” it said.
The BoI has for the past several years bought massive amounts of dollars in order to maintain an exchange rate of between NIS 3.80/3.90 per dollar. The higher exchange rate is seen as essential for the encouragement of Israeli exports, which tend to be harder to sell abroad when the shekel is high against other currencies.
But in recent months, the number of dollars bought by the Bank has fallen sharply, and with it the shekel/dollar rate; at the close of trading Monday, for example, the rate was NIS 3.77/dollar. HSBC said that this was a sign that the Israeli central bank had become more “tolerant” of a higher valuation for the shekel, seeing it as inevitable at this point, given the advancements in the Israeli economy recently. With inflation forecast at 3 percent or less for 2017, there is less need to weaken the shekel, according to the Bank – hence the increased “tolerance” of a weaker dollar.