Shekel Strengthens Against Dollar; Limited​ Actions Taken to Stop the Rise

Bank of Israel Pledges Not to Increase Interest Rates For the Foreseeable Future

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During the second quarter of 2019, the Shekel appreciated against the Dollar by 1.8%. The strengthening of the Shekel, which has extended to the Euro, is harming Israel’s exporters whose prices are all set in Dollars and whose costs are all in Shekels. The same is true of Israelis startups that have raised money.  All of the money raised is traditionally raised in Dollars, and thus, as the Shekel has gotten stronger, the money raised does not  goes as far to pay salaries and other expenses.

The reason for the continued strengthening of the Shekel is the combination of the fact that the new governor-general of the Bank of Israel has stopped the Bank’s purchase of Dollars, something that was keeping the Dollar strong, and the continued influx of Dollars to the country derived from investments. The Shekel has strengthened particularly in recent days, in anticipation of an interest rate drop in the US, while projections here were that rates would increase. During the last few days, US banks have recommended the purchase of Shekels, putting further strain on the exchange rate — and the real economy as opposed to the financial economy.  

Today, the Governor-General of the Bank realized he had to take some step to stop the strengthening of the Shekel. This afternoon, he stated the Bank of Israel would not raise interest rates any time soon. He couched this decision in the following terms, saying that inflation has been lower than expected (true), but that the real reason for keeping interest at the current rate for the foreseeable future was to eliminate the incentive for investors to buy Shekels in the anticipation they would receive a better return if the interest rates increase in Israel. All of this happening on the same day that the US Fed gave in to political pressure from President Trump and lowered rates by .25%

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