The financial giant Goldman Sachs predicts another weakness of the shekel: "The political uncertainty is worrying."
Concerns in the capital market about the consequences of the legal reform are increasing and there are already quite a few estimates that the shekel may continue to weaken in the short term - something that could accelerate inflation in Israel.
Thus, the economists of Goldman Sachs, the American investment house, warned during the weekend that the weakness of the shekel may continue in the short term in the shadow of the fears of the legal reform of Yariv Levin.
The things were written in the bank's review that is distributed to all its customers, among others, foreign and local institutional bodies can be named.
Under the heading "Shekel - an unusual deviation from the correlation with the global technology market" the bank's economists write: "Recently, the legal reform proposed by the Netanyahu government raised concerns among some investors, including the local ones, that the reform could reduce judicial independence in Israel and lead to a reduction in investment and high-tech growth in Israel The shekel may be subject to domestic policy risks more than in recent years. In line with these concerns, the shekel dollar is in a marked deviation this week from the correlation that characterized it against global technology indices."
Minister Levin at the Likud faction meeting (archive), photo: Oren Ben Hakon
We note that the shekel has weakened against the dollar since last Wednesday by nearly 2.5%, against the background of the governor's warnings about the possible consequences of downgrading Israel's credit rating, as well as warnings from hundreds of senior economists that the government's legal revolution could seriously damage the economy.
The Tel Aviv 125 index has fallen since Wednesday by about 3%, while the S&P500 index actually rose by a similar rate.
"However, it is too early to draw conclusions on the matter. It remains to be seen whether the proposals will be fully implemented and it is also possible that, as it did recently, the Bank of Israel will be able to accompany the significant devaluation of the shekel with hawkish communication about the monetary policy, which may improve the devaluation of the foreign currency," the bank's economists add.
Goldman Sachs economists concluded and wrote: "While the recent increase in political uncertainty is worrisome and could continue to be reflected in further weakness of the shekel in the short term, it will take time for the basic correlation created between the dollar, shekel and global technology stocks to erode."
"Could reach NIS 3.6"
Goldman Sachs economists are not alone.
Even in the local market, more and more traders and foreign exchange experts are warning against the weakening of the shekel. While a moderate devaluation of the shekel in itself is not dangerous to the economy and even supports exports, too sharp a devaluation may accelerate inflation, which is still far above the upper limit of the Bank of Israel's target. The high dollar exchange rate raises the price of fuel, the prices of flights abroad, the prices of imported products and more.
"The dollar continues to soar" // Photo: Rafael Ben Ari,
Yossi Freiman, CEO of Prico, Risk Management, Financing and Investments explained: "As expected, the dollar continues to rise and has already crossed the NIS 3.43 level to the dollar.
All this without any calming action by the treasury regarding the governmental revolution, which opens the door to movement even towards NIS 3.6.
Such devaluation will lead to price increases and inflation.
As I recall, this makes the price of fuel more expensive for all of Israel, which will rise next month like all imports, and this is before the expansion of foreign capital outflows, which will make credit costs more expensive."
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