Israeli shekel Drops to Seven-year Low despite Pumping $30 bn to Support Exchange Rate

The Israeli shekel continued its sharp downward trend against the US dollar by about 2.5%, and the exchange rate exceeded 3.95 shekels per dollar, despite the intervention of the Israeli Central Bank yesterday to prevent the shekel from collapsing by pumping $30 billion to support the exchange market, in light of the deteriorating security situation in Israel as a result of Operation “Al-Aqsa Flood", which began last Saturday.

The Israeli website Globes said that the price of the shekel against the dollar currently decreased by 1.01% compared to the representative price yesterday, at 3.9494 shekels/dollar, and the shekel-euro price rose by 1.42%, reaching 4.1783 shekels/euro.

Bank officials said, in a press briefing yesterday, that the impact of the intervention should not be measured over the course of one session, but rather after a few days, during which the bank will review its activity in the market.

Head of the Markets Department at the Bank of Israel, Golan Bennetta, said: “During overnight trading in Asia, the exchange rate reached 4.2 shekels and even 4.3 shekels to the dollar, so it was important to increase certainty in the local market in order to mitigate as much as possible possible overreactions.” In the market".

The Globes website said that there are those who believe that the shekel will continue to collapse against the dollar, quoting the CEO of the Prico Group, Yossi Freeman, as saying, “It appears that the price of the shekel against the dollar will decline, fixing the dollar at 4.2 shekels,” in light of the deteriorating security situation.

Fryman added that in this case, the Bank of Israel would have to pump more money into the market in order to stabilize the exchange rate, stressing that “the rate of devaluation of the shekel is strong and rapid.”

Harel Gilon, co-CEO of Oppenheimer Israel, said that the dimensions of the Bank of Israel’s intervention are unprecedented, and the bank has foreign currency reserves amounting to $200 billion, and is deciding to sell $30 billion. The bank has not announced the volume of its sales yet, but with this huge figure it certainly seeks to intimidate speculators and those seeking to exploit the weakness of the shekel and make money from its devaluation.cThe bank has shown that it is engaged and stubborn in its determination to stabilize the market.”

Gilon said that the Central Bank of Israel was expected to raise the current interest rate of 4.75% near the end of this month had the war not occurred. He said that the bank will consider cutting the interest rate very soon. Gillon said that when you look at the numbers of reservists being called up for service, it is clear that economic activity will slow down. 

Moreover, he points out that in wartime entire industries cease to exist, such as tourism. Restaurants, shops, and foreign travel stops, and this will certainly change the inflation situation that Israel has had until now, and will also lead to an economic slowdown.

The Israelis were in a state of panic buying, after the internal command of the Israeli army issued instructions to people to stock up on canned foods, water, required medicines, torches, and even radios so that they could survive for 72 hours inside their homes if necessary.

After the order was issued yesterday evening, Israelis rushed outside and emptied shelves in supermarkets, grocery stores and convenience stores. Stores were already suffering from shortages of goods, and shelves were empty of fruits, vegetables, eggs, pastries and other products due to a lack of staff and a lack of supplies after farmers in the south were unable to harvest them and transport the goods.

This morning, some major supermarket chains began restricting the amounts at which customers can purchase basic goods. Shufersal Co., Ltd. announced that in order to meet the numerous requirements of customers, there will be restrictions on the purchase of water, eggs, milk and bread whose prices are controlled.