"The same tune is being played. The shekel is strengthening against the dollar and euro, exports are hurt, and pressure on the central bank to act is growing," says Ayalon Group chief strategist Yaniv Pagot. "In a world without constraints, the local central bank would cut the interest rate and reduce as much as possible the shekel's customs shield. But we don’t live in such a world - the opposite is the case."
Pagot says, "Another interest rate cut at this time, when the government is still scratching its head on how to increase the supply of land, would further inflame housing prices and jeopardize economic stability. The Bank of Israel is on top of an Everest of dollars bought during its previous interventions in the foreign currency market. A further increase in the foreign currency reserves should be like porcupines making love - very carefully."
Pagot concludes, "We assume that notwithstanding the shekel's latest strengthening against the US dollar, the Bank of Israel will bite its lips and monitor trends in the local foreign currency market and the forces strengthening the shekel, and it will not act immediately. If the trend worsens, the central bank can always use its rhetorical weapon to deter speculators, and only act afterwards. The to-do list of the new Bank of Israel governor will require an updated foreign currency strategy for a world of currency wars in order to support exports of countries with stagnant growth."
Published by Globes [online], Israel business news - www.globes-online.com - on April 3, 2013
© Copyright of Globes Publisher Itonut (1983) Ltd. 2013