An increase in U.S. interest rates didn’t help, and neither are the ongoing purchases of dollars by the Bank of Israel; the dollar continues to fall in value against the shekel, and exporters are demanding renewed efforts by the government to do something to soften the value of the shekel.
The Israeli currency rose to NIS 3.48/dollar on Thursday before retreating somewhat, closing for the weekend at NIS 3.485. Last weekend, after the Fed announced a .25-percent increase in the prime rate, raising rates from 1.25 percent to 1.5 percent, and in response, the shekel took a dive, falling to as low as NIS 3.53/dollar, before rebounding.
In recent months, Ma’ariv reported, the Bank of Israel has leveled off its involvement in the foreign currency market, only buying the same amount of dollars it had been purchasing a year ago, even though there are now more dollars in Israel, driving down their price.
The Bank, according to the report, decided to hold off on increasing its purchases after it became evident that intervention only had temporary effects – and that a real solution to the issue of an overappreciated shekel lay elsewhere.
Exporters crave a weaker shekel because it helps them offset costs. In order to compete abroad, Israeli exporters have to charge prices for their products and services that are in-line with the going rate abroad, but they have to pay expenses in Israel in shekels – so when the dollar (the main currency used by Israeli exporters for their activities abroad) is weaker against the shekel, exporters get fewer shekels for their dollars earned abroad – making their expenses in Israel higher. As a result, exporters and manufacturers have been increasingly pressuring the government to renew its intervention policies.
“We have been experiencing a gradual slide in the value of the dollar. There are speculative interests operating in the foreign currency market, and the Bank of Israel must increase its awareness and bolster its activities in the market,” said Shraga Brosh, head of the Israel Manufacturers Association. According to Brosh, exporters cross a “psychological barrier” when the shekel falls below NIS 3.50/dollar. “Already we see many manufacturers and exporters facing problems, and a continuation of this trend will just make things worse. The low dollar harms not only exporters, but Israeli manufacturers as well, because it makes imported goods cheaper, harming sales of local manufacturers. The Bank of Israel must effectively intervene in the market, otherwise more Israeli companies will move abroad,” Brosh said.