The accelerated devaluation of the shekel since the central bank surprisingly slashed lending rates by 2% in December 2001 is a mixed blessing.

In recent months, especially last week, devaluation's impact on prices was painfully evident. Yet it is also a lifeline for exporters, although trade data still does not reflect this.

But in order for a devaluation to have a positive influence, it has to be real, meaning it has to exceed inflation.

When the dollar was racing toward the NIS 5 mark, it was clear the devaluation was very real. But the exchange rate has since fallen below NIS 4.7 to the dollar.

The exchange rate this weekend reflects a nominal devaluation of 5.4% compared to the rate at the end of 2001, while inflation in this period was 6.3%. It thus seems the devaluation was offset by inflation. The currency basket, which is a better scale for weighing foreign trade, shows a brighter picture: The basket climbed 8.9% since the beginning of the year, leaving a real devaluation of 2.6%.

Naturally, these differences reflect the strengthening of the European currencies compared to the dollar.

The reviewed six-month period is, of course, arbitrary and not sufficiently representative. Taking 2001 and its 1.4% inflation into account, the shekel lost 8.6% to the currency basket and 6.6% to the dollar (not including the price rises in the beginning of July).

Before the sharp interest cut of December and the dollar's surge, an exchange rate of NIS 4.7 to the dollar was considered reasonable for Israel's economy, and not only by The Economist's Big Mac Index. It seems the economy can handle this rate pretty well now too, provided, however, that the prices do not continue to rise and eat away at the devaluation. According to most forecasts there is no cause for concern: Projections are that the second half of the year will most likely end with 1% or 2% inflation.

The exchange rate is not the only way to secure a real devaluation. It could also be accomplished by improving the efficiency of exporters, and of banks: Real interest of 11-15% could spell the end for many businesses.

Finally, export plants must adapt to the changing markets and focus on those markets in which the currency represents an advantage, namely, Europe and the Far East (mainly Japan), not forgetting all the while to use hedging.