Exactly one week after performing an emergency rescue of the floundering dollar by announcing massive dollar purchases, Bank of Israel Governor Stanley Fischer abruptly declared an end to that policy – sending the dollar plunging once again.
The dollar had lost more than 16 agorot – nearly 5% - in two and a half weeks, dropping from NIS 3.90 to NIS 3.74 by August 3. Fischer then stepped in with a major show of confidence in the dollar, announcing that the Bank of Israel would purchase massive amounts of the greenback. The dollar responded immediately by jumping 12 agorot, and was on its way to NIS 3.94 late this morning when Fischer abruptly announced an end to the all-out buying spree. By the time the official rate for the day was announced around 3:30 p.m., the shekel had gained 1% on the dollar, and is now officially worth 3.873 shekels.
At the same time, the euro also lost ground compared to the shekel, dropping 2.1% to just over NIS 5.50.
The Globes business publication reported that senior business figures are pleased with Fischer’s latest moves. Shlomo Maoz, Chief Economist of Excellence Masuah said, “I am happy that the Governor has repented, and is following my advice from two years ago. I told him he should intervene like in Singapore, that is, to buy foreign currency without announcing in advance how much and when. At first he didn’t want to intervene at all, then he began to purchase in a set, transparent manner, and now he has finally returned to the middle way. There is no need for transparency in the foreign currency market; the traders should be kept in the dark.”
As if to reinforce the darkness in which he is leaving the traders, Fischer purchased a large amount of dollars even today, while announcing that he was stopping the systematic, regular purchases.
Most economists agree that Fischer will begin raising the interest rate, which stands now at 0.5%, in the coming months. Economists at Barclays say that the recession in Israel is all but over, that growth will return to 3% in 2010, and that interest will rise to 3.5% by the end of 2010.
The experts are divided, however, on whether the dollar will continue dropping, stabilizing at NIS 3.6, or whether it will climb and reach NIS 4.0.