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The reasons for the strengthening of the shekel are mostly good.
The question is whether the result is also good
The shekel is receiving a massive boost from foreign investors pouring billions into high-tech companies, finance, fintech and more, but the bottom line is that the Bank of Israel still has to fight the weakening dollar.
The governor has already announced the next step
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Bank of Israel
Sonia Gorodisky
Tuesday, 15 December 2020, 14:34
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Encouragement of the shekel: Foreign residents' investments in Israeli bonds on the Tel Aviv Stock Exchange during the Corona crisis increased and the value of the balance of the bond portfolio held by non-residents reached a level of $ 20.1 billion from February to October - the highest level in ten years.
This is what the Bank of Israel publishes this morning.
Foreign investments in Israeli government bonds have contributed to the ongoing weakening of the dollar against the shekel in recent months. In order to buy Israeli bonds in shekels, foreign entities are selling dollars.
This year was a one-time event that particularly affected the local bond market and is Israel's entry into the global bond index of government bonds.
Although an event of this magnitude, which is estimated to bring in a flow of about $ 5 billion to Israel, will probably not return, the fact that the corona period does not deter foreign investors from investing in Israel can not be ignored.
The level of growth in investments in high-tech, fintech and start-up companies continues despite the economic crisis in which Israel finds itself.
All of these together lead to the shekel strengthening and the dollar weakening.
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To the full article
Israel is in an economic crisis, but investments are flowing and the shekel is surpassing the dollar
The Bank of Israel also notes that the share portfolio rose more moderately from the beginning of the Corona crisis, from February to the end of October this year, the value of a foreign portfolio in Israel of nonresidents on the Tel Aviv Stock Exchange increased by $ 0.4 billion and reached a level of about 49.8 billion. Note that despite the crisis, non-residents did not sell Israeli shares on the Tel Aviv Stock Exchange to a significant extent, unlike the crisis of 2008.
Buying bonds or shares is part of the balance of payments - the backbone of the shekel recently. The balance of payments takes into account the amount of money entering Israel On the other hand, it comes out in several aspects: goods, services, financial investments and wages. For example, a foreign investor who buys a start-up company in Israel affects the balance of payments and contributes to the surplus in his current account. On the other hand, importing products from abroad reduces this surplus.
During the Corona crisis, imports of products to Israel decreased.
Last night, the Central Bureau of Statistics announced that the current account of the balance of payments continues to maintain its strength and even strengthens.
The current account surplus amounted to $ 6.4 billion in the third quarter, compared with $ 5.1 billion in the second quarter of 2020. The current account of the balance of payments measures the amount of money that enters Israel less the amount of money that goes through goods and services.
The governor: "The reasons that led to the strengthening of the shekel are mostly good"
The weakening of the dollar against the shekel has been halted slightly in recent days.
One of the reasons for this may be the Bank of Israel's statement that it will continue to purchase foreign currency "in the amount required" despite the high foreign exchange reserves already approaching 40% of GDP. This is a reassuring message to the foreign exchange market, signaling that the weakening dollar will continue. .
Last night, the Governor of the Bank of Israel, Prof. Amir Yaron, said at the Eli Horowitz conference of the Israel Democracy Institute that he will continue the policy in the foreign exchange market in 2021 and purchase foreign currency in the amount required to prevent the appreciation "beyond what is derived from the basic data."
He said, "The current account surplus has increased this year, due to temporary reasons related to the crisis - a significant contraction in imports and declining energy prices. The reasons that led to the strengthening of the shekel are mostly good: years of current account surplus and capital movements. "Israel, and large investment bodies in the world that have increased the volume of their holdings in Israeli government bonds thanks to Israel's joining the global WGBI index."
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