The Bank of Israel has intervened in foreign-currency trading for the first time in 11 years to weaken the shekel.
In previous decades the Bank has supported the shekel to protect Israel’s ailing economy, but last week Stanley Fischer, governor of the Bank of Israel, ordered the sale of half a billion dollars worth of shekels to shore up the American currency. With Israel’s economy booming, the shekel has also appreciated sharply against all the world’s currencies except the yen and Swiss franc.
Over the past year the US dollar has slumped nearly 20 per cent from 4.2 to the shekel to 3.4, while sterling has fallen nearly as far, from 8.3 to the shekel to 6.9.
“Until December we saw the weakening of the dollar,” explained Mr Fischer, “but since then we have also seen the strengthening of the shekel.”
The governor felt it was necessary to take action to keep Israeli exports competitive and protect local industry from cheaper imports. He is also expected to lower the Bank of Israel interest rate by 0.25 per cent to 3.25 per cent, having lowered it by 0.5 per cent last month.
While the talk is of recession in the US and slowdown in Europe, Israel’s Central Bureau of Statistics issued data this week showing that the economy grew by 5.9 per cent in the second half of 2007.
For the moment, Israeli consumers are living it up with a 23 per cent increase in sales of cars and consumer durables in 2007 and a further 30 per cent boost so far in 2008. More Israelis than ever are going to be heading abroad for Pesach on cheap package deals, but there are fears that higher hotel costs in Israel will spoil what had been expected to be a record year for tourism.
Not only Israeli exporters and hotels are suffering. Hard hit are Israeli population sectors which receive donations from Diaspora Jewry, particularly the strictly Orthodox community, which is dependent on philanthropic contributions from America.
The rabbinical elders of the Lithuanian Charedi community in Israel have even ruled that the dollar exchange rate to the shekel should be four.
Perhaps the sages have heard of hedging, because Jewish Agency Spokesman Michael Jankelowitz told the JC that his organisation had so far been able to maintain programming because of shrewd hedging with banks. “But we will soon have to negotiate a new hedging arrangement,” he said, “and this entire issue is a major worry for us.”