Senior Bank of Israel Official Says Shekel ‘Notably Overvalued’

  • Export growth is lagging world trade: Market operations chief
  • Shekel trading at record high against currency basket

Israel’s shekel is too strong, at a time when the country’s export growth isn’t keeping pace with global trade, according to a senior Bank of Israel official.

The central bank hasn’t reported buying foreign currency in two of the past four months, and with the economy growing above 3 percent in the last two quarters, it may be reluctant to intervene to weaken the shekel to give exports a push, some analysts say. Yet Andrew Abir, head of the central bank’s Market Operations Department, says the currency remains too robust.

“The currency is still notably overvalued,” Abir said in a telephone interview, when asked about the bank’s currency purchases. He also pointed out that “exports are still growing more slowly than world trade.”

The shekel is trading at a record high against a basket of currencies, making it hard for Israeli companies to compete abroad. Exports, which account for about a third of the country’s output, shrank 4.7 percent in the third quarter. The Bank of Israel has bought foreign currency aggressively in recent years, tripling its foreign reserves to $97 billion since 2008, in part to slow the currency’s appreciation. It has also cut interest rates to 0.1 percent.

Rony Gitlin, head of spot trading at Bank Leumi Le-Israel Ltd., the country’s second-largest lender, took Abir’s comments to signal future Bank of Israel intervention in the forex market.

Even though the central bank has slowed down the amounts of U.S. dollars it purchases in the past year, “this means that the central bank won’t disappear from the FX market,” Gitlin said.

The shekel has gained 8 percent against the dollar in the past decade, and the Bank of Israel reasons that its intervention has moderated the impact of a strong currency. It says foreign currency purchases also help it to boost inflation, which has been negative for 26 consecutive months on an annual basis.

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