Morgan Stanley has published a new report on the Israeli economy, in which it comments on the strong shekel and predicts that its appreciation against the dollar will continue.
“The shekel has appreciated, but remains undervalued, in our opinion. The shekel’s fair value against the dollar is NIS 3.90, which means that it remains undervalued by 9.5% against the dollar,” says the investment bank.
As for Israel’s economic situation, Morgan Stanley says, “Look beyond geopolitical speculations, you would see strong economic fundamentals. Israel has achieved internalizing price stability - even to the extent of experiencing a period of deflation, consolidating fiscal imbalances, and accelerating the rate of output growth.”
Regarding the Bank of Israel’s monetary policy, Morgan Stanley says, “The ‘Fed link’ may be less relevant, but the shekel’s gain is not enough to justify a rate cut. Although we do not necessarily see America’s short-term interest rates as a natural bound for Israel’s monetary stance, it would be premature to start cutting interest rates just because of the shekel’s recent appreciation.”
Published by Globes [online], Israel business news - www.globes.co.il - on October 12, 2006
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