Bank of Israel Buys Don’t Budge Shekel

The Bank of Israel’s foreign currency purchases in recent weeks, aimed at correcting the downward trend of the shekel-dollar exchange rate, has not been effective, Globes said on Tuesday.

Israel’s central bank set the exchange rate down 0.746% on Tuesday at NIS 3.428/$ – the strongest the shekel has been since July 2008.

According to most market analysts, if the trend persists, and the rate falls below NIS 3.23/$, it will likely exceed its strongest valuation since November 1996.

Foreign currency purchases of $1.9 billion last month and hundreds of millions of dollars more in the first few days of December have failed to stem the surge.

Bank Hapoalim analysts said the shekel’s performance is largely the result of external conditions:

“The strengthening of the shekel to a 12-year peak mainly reflects the weakness of the dollar worldwide but is also supported by factors like the rise in Israel’s account surplus and rises on the world’s stock markets. The dollar comprises 39% of the basket of currencies so there has also been a sharp appreciation in the shekel’s nominal effective rate.”

“In the short term the shekel will be influenced mainly by trends on stock markets. A continued rise brings about the sale of large amounts of foreign currency by institutional investors. Appreciation pressures will be eased when restrictions are removed on activities and we will again see Israelis traveling abroad,” the analysts said.