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In the shadow of the passing of the legal reform: the dollar soars against the shekel - "will quickly move to 4" | Israel today


The dollar is close to the level of NIS 3.60 • Foreign exchange market factors link the devaluation of the shekel to the approval of the first part of the legal reform • CEO of Prico: "The devaluation of the shekel is expected to further fuel inflation and lead the Bank of Israel to raise interest rates further"

The dollar jumped this morning (Sunday) by about 0.8% in early trading against the shekel and is close to the level of NIS 3.60.

Sources in the foreign exchange market link the devaluation of the shekel in recent hours to the approval of the first part of the legal reform in the first reading - something that clouds the general sentiment in the market that prefers certainty and broad consensus.

Yesterday the Bank of Israel raised the interest rate for the eighth time in a row to its highest level since 2008 - 4.25% in an attempt to moderate the rising inflation in Israel.

The weakening of the shekel against the dollar will make it difficult for the governor of the Bank of Israel to eradicate inflation because it contributes to increasing inflation - the high dollar increases the price of fuel, flight prices and prices of imported products and more.

money bills.

The shekel weakened against the dollar, photo: Reuters

According to Yossi Freiman, CEO of Priko Risk Management, Financing and Investments: "The legal reform went up a step after it passed the first reading in the Knesset yesterday.

With the passing of the legal reform, the dollar soared towards the level of NIS 3.59 per dollar.

There is no change in our assessment, according to which the stabilization of the dollar above the level of 3.6 shekels, may be a marker of significant moves taking place below the surface.

Investors and hi-tech companies divert significant funds outside of Israel.

The devaluation of the shekel is expected to further fuel inflation and lead the Bank of Israel to raise interest rates again at the bank's upcoming meeting on April 3.

"Decreasing rates in the stock markets"

The other reason for the strengthening of the dollar is the expectation of continued interest rate increases in the US to levels of 5.25-5.5%.

"The expected increase in the dollar interest rate due to the increase in inflation and the tight labor market, may result in lower prices in the stock markets and inflow of foreign exchange demand against the shekel, from the institutional side. This move will further fuel excess demand and the shekel's devaluation.

Governor of the Bank of Israel, Prof. Amir Yaron, on a trip after raising the interest rate one more time \\ Photo: L.A.M.

Without agreement on the key questions, especially on the issues related to the independence of the court and maintaining the separation of powers mechanism, the dollar may, upon breaking through the level of NIS 3.7, quickly move towards the level of NIS 4 and more.

The great concern remains regarding the continued investment of the international bodies in Israel and the impact of the outflow of the currency on the cost of raising capital for the Israeli economy.

Which will severely damage the state budget and the government's ability to maneuver in times of crisis."

Will the Bank of Israel intervene?

Among the reasons that led the Bank of Israel to raise the interest rate by half a percent, the monetary committee also mentioned the weakening of the shekel.

In an interview with Israel Hayom last night, Bank of Israel Governor Prof. Amir Yaron stated that if there was a very unusual fluctuation in the foreign exchange, the Bank of Israel could also intervene in the foreign exchange market.

Governor of the Bank of Israel, Prof. Amir Yaron (archive), photo: Oren Ben Hakon

"In the last two and a half weeks, we see a kind of weakening of the relationship between the exchange rate and the performance of the US stock market.

But this is a period that is so short and with a lot of noise around, that it is very difficult at the moment to point to any definite causality.

But it is clear that as much as there is a devaluation of the shekel, it does not help us eradicate inflation.

Although the interest rate is of course the central, prominent, and horizontal tool to eradicate inflation, it is clear that we also have other tools in our arsenal, and if we need to, we can also use them," said the governor.

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Source: israelhayom

All news articles on 2023-02-21

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