With the dollar trading at its lowest against the shekel since 2011, despite efforts by the Bank of Israel, central bankers urged lawmakers to have patience before taking their own measures aimed at weakening the Israeli currency.
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Amit Friedman, an adviser to the head of the Bank of Israel’s Market Operations Department, urged lawmakers on Tuesday to wait another month before coming to any conclusions about whether the central bank’s intervention in the foreign exchange market has had an effect.
“We are operating creatively and you will see in the data that comes out next month the results of our intervention,” he told the Knesset Finance Committee. “The bank is acting aggressively in the market.”
Friedman rejected calls by some lawmakers for the Bank of Israel to bar currency speculators. “The dollar’s weakness is a global phenomenon. The shekel appreciation has been relatively modest,” he said. “In every currency market there are speculators and to remove them would mean changing the entire structure of the market Nevertheless, we don’t see signs of manipulation.”
Friedman spoke as the dollar weakened 0.3% on Tuesday to a representative rate of 3.3990 shekels, its lowest level since 2011, after falling more than 10% against the shekel in 2017.
In late trading, however, the greenback gained ground on the shekel to 3.4207 as the dollar has firmed up on reports U.S. Treasury Secretary Steven Mnuchin said a strong dollar would be in the country’s long-term interest. Mnuchin’s statement about a weaker dollar being better for American trade hurt the greenback last week.
The Bank of Israel has intervened in the currency market in recent weeks buying dollars in an effort to stem the shekel’s strength, which has made it harder for Israeli exporters and even the country’s high-tech industry from remaining price competitive in global markets.
“We’ve been working in the recent period much more aggressively,” said Michael Blank, who heads the Bank of Israel’s currency dealing room. He expressed frustration that the bank’s efforts – as well as $2 billion in dollar bonds sold earlier this month – had failed so far to turn the shekel around.
Finance Committee lawmakers said the central bank and treasury had to take significantly more effective steps to reverse the trend.
“I feel in this content like we’re facing an economic emergency and if we don’t act quickly we’ll find ourselves in a difficult position vis a vis the most critical sectors of Israeli industry, which will have to downsize their Israeli operations,” said committee chairman MK Moshe Gafni (United Torah Judaism).
Gafni threatened delays in approving the Economic Arrangements Law now before the Knesset. Turning to treasury officials sitting in the room, he said: “If the situation doesn’t improve, you’ll have a hard time with the Arrangements Law. We won’t allow industry, agriculture and other sectors to be harmed.”
Nonetheless, he said he was prepared to wait the month Friedman asked for before taking action.
Industrialists have been told they have to compensate for the strong shekel by making efficiency measures, but Shraga Brosh, the president of the Manufacturers Association trade group, said the government was in fact raising their costs. Among other things, he cited an expected hike in electricity rates and municipal taxes as well as added costs for workplace accident insurance.