Nov. 22 (Bloomberg) -- The shekel’s “fair” value is 21 percent higher than the present rate as Israel’s current account surplus is poised to triple this year, Bank of America Corp. Merrill Lynch said.

“Our fundamental model shows the shekel is massively undervalued,” said Benoit Anne, head of emerging market foreign-currency and debt strategy at the bank, in an interview late Nov. 19. “Israel’s current account surplus has adjusted sharply to the crisis and is now quite robust.” The shekel, which closed at 3.8056 per dollar on Nov. 20, has a “fair” value of 3 per dollar, he said.

Intervention by the Bank of Israel is one reason the shekel trades lower, Anne said. Central bank Governor Stanley Fischer began currency purchases in March 2008 in a bid to shore up reserves, weaken the shekel and help exports, which make up almost half of the country’s gross domestic product. Foreign currency reserves more than doubled during the buying spree to a record $61.2 billion.

Fischer’s currency purchases may spur inflation and damage the bank’s credibility, the Organization for Economic Cooperation and Development said last week.

“It’s a bit of a stretch to say the intervention damages the credibility of the central bank,” said Anne. “The bank has managed the crisis quite well. Still, a central bank ultimately will not be able to sustain intervention forever. At some point they will have to give out indeed.”

Bank of America-Merrill Lynch estimates the shekel, which doesn’t trade on Sundays, will buy and sell at 3.4 per dollar by the end of 2010. The currency has dropped 0.8 percent in the fourth quarter.

Israel posted its fourth consecutive current account surplus in the second quarter, the Central Bureau of Statistics said Sept. 14. The surplus is expected to more than triple to $6.9 billion this year, the Bank of Israel said Sept. 1.

The bank’s fair shekel value is calculated based on a model which derives an equilibrium exchange rate based on the analysis of structural current account dynamics, Anne said.

To contact the reporter on this story: David Wainer in Tel Aviv at dwainer1@bloomberg.net

Last Updated: November 22, 2009 09:21 EST