Shekel hits NIS 3.11 per dollar as ‘avalanche’ continues

Manufacturers and exporters in Israel are suffering as the shekel reaches its strongest level in 25 years. However, analysts do not see the trend changing anytime soon.

The shekel was trading at NIS 3.11 per dollar on Tuesday, retreating slightly after touching below NIS 3.10 the day before. Against the euro, the Israeli currency was trading at 3.59 NIS.

The shekel has gained 4% so far this year, making it one of the best performing global currencies in 2021. Since the start of the pandemic, the shekel has strengthened by roughly 10%.

Barring sharp market corrections, the shekel will continue to strengthen further and could reach NIS 3.05 by the end of 2021 and NIS 2.95 by mid-2022, said Jonathan Katz, chief economist at Leader Capital Markets.

While industry leaders are calling on the Bank of Israel to do more to weaken the shekel, there is little chance that it will make any significant moves, Katz said. Central bank governor Amir Yaron has given clear messages that he sees little reason to intervene in the foreign exchange market, in a clear policy shift from his predecessors.

Illustrative photo of Israeli money (credit: MARC ISRAEL SELLEM)

The main tools in the central bank’s monetary policy toolbox are buying more dollars and lowering interest rates. But with the benchmark loan rate still at a record low of 0.1% and the bank’s forex market targets already exceeded, it’s unclear how much more can be done.

The Bank of Israel has already bought more than the $ 30 billion in shekels it said it would buy in 2021. When the shekel touched NIS 3.08 during trading on Monday, the Bank of Israel apparently made a surprise intervention and bought hundreds of millions of shekels to weaken it. the coin. However, no further purchases of this type are expected and, in any case, they are not likely to have an effect that slows the growth of the shekel.

The strength of the shekel has been attributed to a combination of factors including Israel’s rapid economic recovery from the pandemic; a large current account surplus expected to reach 5.5% of GDP in 2021, largely due to sales from the high-tech sector; as well as a massive foreign direct investment in the high technology sector.

“Now a kind of avalanche effect is happening,” Katz said.

However, there is still a lot of good news.

“In general, although exporters will struggle, a strong shekel is good for the economy,” Katz said. “Consumers benefit from this and investments will also be cheaper. Companies that are thinking of expanding their activity by buying new equipment will pay less. It will also help ease inflationary pressures. “

Manufacturers, meanwhile, are furious as their revenues plummet while costs remain the same.

“What the corona variants did not do to the economy, the dollar variant will do,” said Ron Tomer, president of the Manufacturers Association. “Exporters from all industry sectors and also from high technology are starting to export with no profit or loss. This is an unsustainable process and when it explodes, it will explode in our faces ”.

“We’re at a point we’ve never seen before,” said Manufacturers Association Vice President Ayelet Nahmias-Verbin. “There is no labor to work in companies, and when there is, it costs us three times as much. There are no raw materials to work with, and when there are, they cost ten times more, due to rising shipping costs and the erosion of the dollar. The dollar is a major part of the pressure the economy is experiencing. It is impossible to continue producing and exporting under these conditions. Exports that helped lift the economy out of crisis are facing collapse. “

“For all high-tech manufacturers, between 60% and 100% of sales are made in foreign currency, while all costs are in shekels,” said Marian Cohen, president of the Association of High-Tech Companies at the Manufacturers Association. “It goes straight to the bottom line. The dollar crisis is prompting companies to develop branches abroad rather than in Israel. Reports from companies will remain at similar levels, but there will be no industry here. Today, Israeli high-tech employs some 70,000 workers abroad. “

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