The dollar is rising to NIS 4.7464 Wednesday morning, 0.52% higher than Tuesday's representative rate of exchange. Since Sunday, the dollar has risen 2.6%, and is just 0.7% short of its all-time peak, NIS 4.78.
The dollar gain is attributed to a terror attack on an army roadblock in the territories on Tuesday, in which six soldiers were killed. Dealers said that big buying activity by banks and customers sent the dollar up. They estimate that the dollar could climb higher given the escalation in regional violence. The dealers said that buying spreads opened at 100 basis points, one agora.
The currency market is awaiting the interest-rate announcement of Bank of Israel David Klein due next Monday. The 1.1% rise in the January consumer price index led dealers to anticipate he will hike key lending rates by at least 0.5%.
Other dealers believe Klein could postpone raising interest rates due to the pessimistic economic indicators published this Monday. In the fourth quarter unemployment rose to 10.2% from 9.6% in the third quarter, and gross domestic product shrunk by 7.2%.
According to Bank of Israel data published some days ago, capital market inflation expectations are at a high 2.9%, near the upper limit of the 2002 inflation target of 2% to 3%. Other data show a marked 5.2% rise in payment means. Such data supports raising key lending rates. Klein has recently said that the bank is committed to the inflation target and that he won't hesitate to raise lending rates should there be a risk of high inflation.
Economic and financial services firm Prico Management anticipates that the dollar will continue rising even higher than its all-time record. The estimates are based on inflation factors remaining in force. These include a low gap between shekel and dollar interest rates, deepening budget deficit, rising unemployment, and the crisis of faith in the approved budget. It appears government spending for 2002 will exceed the budget.
Prico economists estimate that Klein will raise interest rates gradually, and expect that the next rise will come to 0.3%. The economists said that should another rise be required, the governor will raise key lending rates by 0.4% in another month.
The economists' medium-term estimates speak of key lending rates rising, and of the American capital market stabilizing. The economists said that this will support the shekel rising to NIS 4.60 to NIS 4.62, and later to NIS 4.56 to NIS 4.58.