Devaluation of Shekel and Constitutional Crisis in Israel Weaken Currency, Say Deutsche Bank Economists
Amidst recent developments in the Israeli currency market, Deutsche Bank economists have published a review indicating that the shekel does look cheap, but it is not attractive even after the recent drop in value.
Deutsche Bank highlights the ongoing inability of various parties in Israel to reach agreements regarding legislation related to changes in the legal system and the constitutional crisis that the nation is currently facing as major factors that weaken the shekel. “The markets do not look favorably on a constitutional crisis against the background of the disputes between the government and the Knesset before the Supreme Court,” the economists assert.
Furthermore, Deutsche Bank notes the flow of funds outside of Israel by institutional investors, alongside a substantial decrease in investments in high-tech companies and startups within the country. These factors, according to the bank, further contribute to the weakening of the shekel.
The Bank of Israel is also mentioned as a factor impacting the shekel’s value. Deutsche Bank believes that “the Bank of Israel has no desire to intervene in what is happening in the foreign exchange market at this time” and strengthen the shekel against the dollar.
Despite acknowledging that the shekel is undervalued from a long-term perspective, Deutsche Bank economists argue that in the short and medium term, there are weighty factors that will continue to suppress the Israeli currency.
Citibank’s recent report provides additional evidence of the shekel’s poor state. The bank announced significant profits from its short position on the shekel against the dollar and the euro. Citibank attributes the weaker growth forecast in Israel in the long term to the delicate political situation, leading to an increase in demand for the American currency.
In conclusion, both Deutsche Bank and Citibank warn of continued depreciation of the shekel, citing the constitutional crisis, capital outflows, decreased investments, and the Bank of Israel’s lack of intervention as significant factors. The future forecasts suggest a higher foreign exchange rate for the shekel.
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