The New Israeli Shekel – A Forecast

7 Apr

by Dr. Eugene Sarver

Image courtesy of memrieconomicblog.org

Over the next two years, the Israeli shekel is expected to appreciate nearly 3% on a steady climb, in the context of its independent float over the past seven years. Lifting the shekel will be tightening monetary policy, exemplified by an increase of 2.5% in the Bank of Israel’s Base Rate in response to 3.6% CPI inflation in January, beyond the central bank’s Financial Stability Target. Also, strengthening the shekel will be its favorable balance of payments performance, with the current account surplus representing 2.8% of GDP this year and next, related to strong GDP growth of 3.7% and 4.2%, respectively, including vigorous growth of 7.7% in the latest quarter/quarter period. Spurring the latter will be Israel’s high tech industry, including medical and computer products. Offsetting the latter will be relatively unfavorable inflation rates of 2.8% and 2.6%, respectively, including the January 2011 spike.

With regard to the major currencies impacting the shekel, the dollar will be held back by very low interest rates attributable to persisting high unemployment, while the yen will be temporarily boosted by insurance inflows, etc., related to its recent earthquake/tsunami, but later weaken based on persisting low interest rates, while the Swiss franc will generally follow the Euro, while being held back by very low interest rates and a deteriorating balance of payment situation, although boosted by Switzerland’s role as a haven currency, its large international reserves, its strong fiscal position and relatively strong economic growth. The obviously uncertain prognosis for unrest in the Arab countries remains an unknown but important factor.

Dr. Eugene Sarver is the Global Marketing Director of FX4Casts, the world’s leading foreign exchange forecaster, and formerly a division of the London Financial Times, with 700 clients in 35 countries, including the central banks of the United States and the European Union. He has served as a consultant to several governments and is the author of five books on international finance and economics. He can be reached by e-mail at drgenesarver@aol.com or by phone in New York City at 212-865-4555.

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One Response to “The New Israeli Shekel – A Forecast”

  1. Michael Stern October 19, 2013 at 8:43 am #

    What is the effect of a strong shekel on the price of local products. For example, will imported goods and services be cheaper or will stay the same price?

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