Bank of Israel: Shekel Gains Reflect Robust Economic Fundamentals

Recent statements by Bank of Israel Governor Amir Yaron highlight the significant economic growth in Israel, evidenced by a strong performance of the shekel against the U.S. dollar. As the shekel reaches four-year highs, Yaron attributes this success to robust economic fundamentals and improved export activities.

Shekel Gains Reflect Robust Economic Fundamentals

Speaking at the World Economic Forum in Davos, Yaron emphasized that the shekel’s appreciation serves as a favorable factor in moderating inflation rates. He pointed out that the rise in the currency coincides with a positive geopolitical climate, especially following the ceasefire in Gaza in October 2023.

Impact on Exports and Inflation

Despite the challenges posed to exporters by a stronger shekel, recent statistics show a marked increase in the exports of goods and services. Since the beginning of 2025, the shekel has appreciated approximately 12% against the dollar. Yaron noted, “We’ve seen exports of both goods and services rise in the last two readings.”

• Shekel’s value increase: Approximately 12% since January 2025
• Inflation rate: Currently at 2.6%, within the target range of 1-3%
• Interest rate cut: 25 basis points earlier this month, marking the second consecutive reduction

The Bank of Israel cut interest rates, partly due to the shekel’s strength and improvements in the inflation environment following the ceasefire. Yaron mentioned that the central bank is equipped with various tools, including foreign exchange interventions, to manage the shekel’s valuation effectively.

Future Considerations

Looking ahead, Yaron indicated the bank’s research department is considering a potential interest rate reduction of another 50 basis points by the end of 2024. This strategy will depend on various factors, including demand recovery and easing supply constraints.

Yaron concluded that while the demand in the Israeli economy remains steady, the anticipated surge has not yet materialized, distinguishing it from the post-COVID economic environment.