Photo Credit: Abed Rahim Khatib/Flash90
Gazan Arab in Rafah receive his financial aid from Qatar in shekels, September 15, 2021.

On Friday the Dollar sank to 3.716 Shekels after having reached more than 4 shekels to the dollar a few weeks ago. At first glance, this trend appears puzzling, since the prospects for Israel’s economy over the coming year are not particularly good: the country will be mired in a lengthy war in the Gaza Strip, which may spread to south Lebanon. The IDF is also engaged in an ongoing, bloody war with Hamas and Fatah terrorists in Judea and Samaria.

Altogether, Israel’s war-related budget deficit is expected to top NIS 80 billion ($19 billion). Such a prospect should naturally dip the value of the shekel and rev up inflation. But it’s doing neither.

Advertisement




The most important reason for the dollar’s sinking against the shekel is that the dollar is sinking against all the world’s currencies. By Friday last week, the dollar reached its second-sharpest weekly decline against major currencies, with the strongest being the Japanese yen: the dollar traded below 150 yen on Friday.

With inflation slowing down in the US – the annual rise in underlying inflation is 3.5%, the smallest in two years – the Fed is expected to stop raising interest rates and eventually start to cut them. This explains the weakening of the dollar, which is expected to dip further.

Amir Yaron, the Governor of the Bank of Israel, has been engaged since the start of the war in selling US dollars to protect the shekel. Yaron believes a weakening shekel means “The biggest risk for inflation,” and has managed to raise the value of the shekel from close to 4.10 to the dollar to the current 3.7 by selling an estimated $9 billion.

So far, the Bank of Israel has also succeeded in maintaining the stability of the market by not lowering interest rates. Lower rates would have created economic pressures that would have devalued the shekel.

But the state of the economy remains tenuous in Israel, and as the consumer price index for October is up by 0.5%, it is becoming clear the longer the war lasts, the less likely the Bank of Israel would be able to compensate for inflationary trends.


Share this article on WhatsApp:
Advertisement

SHARE
Previous articleNetanyahu’s Cabinet Approves Fuel to Gaza Over Smotrich, Ben Gvir Objections
Next articleIron Swords Day 44: IDF Fighting in Gaza and South Lebanon
David writes news at JewishPress.com.