Shekels Sinks, Now Worth 25 Cents
June 27, 2012The shekel-dollar rate hit a three-year high this week and is just about touching the level where a shekel is worth only a quarter, of four for a dollar.
The last time a dollar bought four shekels was in mid-2009, and Wednesday’s quoted rate was five agorot – or less than two cents away.
The shekel has weakened the past several months, when a dollar bought 3.6 shekels, as a slowdown in worldwide growth has cut into Israel’s exports. The constant threat of war with Iran, and the ongoing European debt crisis also have taken their toll on the shekel.
The Muslim Brotherhood victory in Egypt’s presidential elections, with the overhanging threat of a change in the 1979 peace treaty, has made the local currency even riskier for investors.
For good measure, or bad measure as the case may be, Prime Minister Binyamin Netanyahu’s pledge on Tuesday to raise the national deficit sent more shivers through the financial markets.
Bank of Israel Governor Stanley Fischer and Finance Minister Yuval Steinitz objected to Prime Minister Netanyahu’s goal. At the end of the first quarter last year, Israel enjoyed a surplus of slightly more than $1 billion. This year, it swung to a deficit of more than $1.6 billion.
Israel’s economy has outpaced most that in most Western countries before and since the global financial panic in 2008, but the weak worldwide recovery has finally taken its toll. The Bank of Israel cut its prime rate by a quarter of a point this week, a sign it is worried about prospects for a healthy growth economy.
Last year, predictions by financial pundits that the shekel-dollar rate would decline to the 3.3 level were proven wrong.
However, the long-term prospects for Israel may be brighter than they seem at first glance. Development of huge gas reserves is creating thousands of jobs for engineers and other workers, and Israel is for the first time in history is expected to be energy self-sufficient in three years, even to the point that will be able export natural gas.
Energy exports would create a favorable trade balance, which might even grow if oil discoveries are proven to be commercially viable.
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