Illustrative
Illustrative Flash 90

Trading at NIS 3.98/dollar at the opening of business Thursday morning, the once-mighty shekel is likely to go north of 4 to the dollar by the end of this week – and the bottom is nowhere in site, say economists, considering the prospects for government instability until at least after the upcoming March 2015 elections.

According to experts quoted in business daily Globes, the fall of the government will have an important impact on a number of issues in the short term, from deficit spending to the stability of interest rates. Without clarity on those issues, it's likely that the shekel's gradual but steady tumble will continue. There is no bottom in sight right now, said the economists.

The shekel, which for the past three years has traded in a range between NIS 3.3-3.6 to the dollar, began falling precipitously about six weeks ago, after the Bank of Israel slashed interest rates, bringing the prime rate down to 0.25% - the same level as in the US. Speculators who had invested in the shekel in order to benefit from Israel's previously higher interest rates have now largely withdrawn their money, and the shekel has dropped accordingly against the dollar.

The Bank of Israel, meanwhile, announced that it would continue to buy dollars in order to “sop up” extra demand for the shekel. Through the end of the year, the Bank will buy at least an additional $600 million.

“As long as interest rates remain low, the shekel will remain weak. This is to be expected,” they said, and was welcome news for exporters, who have long complained that the high value of the shekel made it harder for them to export profitably. 

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