Shekel weakens sharply amid political, security concerns

The Israeli currency has been weakening sharply on the foreign exchange market amid investor concerns over the new government’s planned judicial reforms and the tense security situation.

In afternoon inter-bank trading today the shekel-dollar exchange rate is up 1.01% at NIS 3.473/$ and the shekel-euro exchange rate is up 1.25% at NIS 3.784/€. On Friday, the Bank of Israel set the representative shekel-dollar rate up 1.147% at NIS 3.438/$, and the representative shekel-euro rate was set 0.888% higher at NIS 3.737/€.

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Prico Risk Management, Finance and Investments CEO Yossi Fraiman says, “The security escalation during a period of political-social crisis on the question of judicial reform means uncertainty for the capital market has been ramped up.”

He continues, “The calm of the past few years, which has allowed companies and the government good conditions for raising investments and available and cheap financing, is disrupted when the economy is exposed to the risks of uncertainty and a growing and significant fear of damage to economic stability. The concern lies, among other things, in the domino effect leading to a stampede in which investors feel pressured and seek to reduce exposure to the Israeli economy as quickly as possible.”

Who are the winners and losers of any shekel depreciation? Fraiman explains that on this occasion there are mainly losers. “Depreciation is good for exports when it occurs gradually, but a sharp depreciation that leads to price increases and a credit crisis will harm the economy in general and the general public in particular. The depreciation of the shekel at a rate of about 3% within a week contributed to the increase in the price of fuel alongside the increase in energy prices around the world. A similar consequence is expected for the full range of imports. “The problem with depreciation is, among other things, that it sets a high level of prices. When importers buy imports at a high rate, it cannot be expected that when exchange rates drop, they will absorb the rate difference at their own expense. So amid the difficult war on inflation a new front must be coped with on price increases.”

Published by Globes, Israel business news – en.globes.co.il – on January 30, 2023.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.