BoI Gov to Exporters: Get Used to It

Governor of the Bank of Israel Amir Yaron. (Hadas Parush/Flash90)

The shekel has proved impervious to the chaos of Israeli politics, as it continued to strengthen against the dollar and the euro on Sunday, Globes reported.

Analysts were quoted saying that it is evident that the markets no longer give any weight to the government’s failure to pass a budget, leading to the fourth election in two years.

Mizrahi Tefahot chief strategist Modi Shafrir wrote, “The continued appreciation of the shekel over recent days and the fall in yields on the bond market demonstrate that the markets in Israel are not sensitive to more elections.”

At the same time, the Bank of Israel has notified exporters that its purchase of foreign currency in recent days was only a temporary measure to provide them with a cushion, but that in the long term they will have to get used to a strong shekel.

In the first eleven months of 2020, the BoI purchased $17 billion in foreign currency, the highest amount for any year since 2009, yet the shekel was affected only marginally.

The bank has explained that its strategy is designed to ‘buy time’ for industry and exporters to adjust themselves to the new exchange rate environment.

Bank of Israel Governor Prof. Amir Yaron told the Eli Hurvitz conference on society and the economy last week that “The shekel is strengthening for a range of reasons, including good ones, and we are working to moderate the pace and ensure that it does not strengthen beyond the dynamic window that we have set.”

The shekel continues to strengthen on Sunday against the dollar and the euro. In late morning inter-bank trading, the shekel was down 0.13% against the dollar at NIS 3.218/$ and down 0.10% against the euro at NIS 3.925/€. The shekel also continues to strengthen against the basket of major currencies, which reflects Israel’s main export markets.

Meanwhile, Israel rose to 30th place in the Center for Economic and Business Research (CEBR) ranking of the strongest economies in the world in 2020, after being ranked 33rd last year.

The authors of the report estimate that in 2035 Israel will rise to 29th place.

The report says that the Israeli economy was severely affected by the coronavirus crisis, and as a result it is estimated that GDP fell by 5.9% in 2020.

The economy is, however, expected to recover to the level of its past highs in 2021, according to the report, with the annual growth rate of GDP averaging 4.4% between 2021 and 2025, and slowing to an average of 4% in 2026-2034, according to the report.

The loss of tax revenue and financial support from the government over the crisis pushed the debt-to-GDP ratio from a fairly stable level of about 57% in 2019 to a predicted 77% in 2021, the CEBR report said.

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