Shekel May Gain 12% on Economy, Goldman Says; Bonds Decline

The shekel may advance 12 percent against the dollar in the next year as Israel’s economy expands and the dollar weakens as the Federal Reserve steps up asset purchases, Goldman Sachs Group Inc. said. Bonds dropped.

“Israel’s economy is now well-entrenched and growth and interest rates are moving in a direction that is likely to support shekel appreciation,” Ahmet Akarli, a London-based economist at Goldman Sachs, said in a telephone interview yesterday. “Some of it will be absorbed by Bank of Israel intervention but the central bank will allow some strengthening to combat inflation.”

The shekel may strengthen to 3.5 per dollar in three months, 3.3 per dollar in six months and 3.23 per dollar in 12 months, he said. It’s likely to trade at 4.9 per euro in three months, 4.95 in six months, and 5.04 in a year.

The Bank of Israel has been buying foreign currency since March 2008, more than doubling reserves to $69.6 billion by the end of October. “Had it not been for the Bank of Israel foreign currency interventions, our shekel view would be even more constructive,” Akarli said.

The Israeli currency, which has appreciated 3.6 percent so far this year, strengthened 0.4 percent to 3.6600 per dollar at 2:17 p.m. in Tel Aviv. It’s the third-best performer among the 10 most-active currencies in emerging Europe, the Middle East and Africa, data compiled by Bloomberg show.

Euro Outlook

The euro will strengthen to $1.55 as the Fed proceeds with a second round of so-called quantitative easing, Goldman said Oct. 6. The Fed on Nov. 3 announced plans to buy an additional $600 billion of Treasuries through June to boost the economy.

Israeli growth was 3.8 percent in the third quarter, the Jerusalem-based Central Bureau of Statistics said Nov. 16. Bank of Israel Governor Stanley Fischer has raised the main lending rate by 1.5 percentage points to 2 percent since August 2009 as the economy recovers, helping to strengthen the shekel even as the central bank bought foreign currency to cap its gain.

Consumer prices are expected to rise 2.8 percent in the next 12 months, according to a central bank survey of forecasters released Nov. 16.

Government bonds fell, pushing the yield on the benchmark Mimshal Shiklit bond due January 2020 up 4 basis points to 4.46 percent.

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