Israeli economic circles are expressing growing concern over a sharp and sustained shift in the exchange rate, as the US dollar falls to its lowest level against the Israeli shekel in three decades. The development has intensified pressure on the government to intervene amid mounting economic imbalance.
According to economic correspondent Yehuda Sharoni of the Israeli newspaper Maariv, the dollar has dropped to approximately 3.01 shekels, marking its lowest point in 30 years. Based on the current trajectory of shekel appreciation, projections indicate the exchange rate could move from the 3-range into the 2-range by the end of the month.
Drivers Behind Dollar Weakness
The report attributes the dollar’s decline to several converging factors. These include the ceasefire with Iran, a reduction in Israel’s risk premium, and increased activity from financial institutions that have been selling dollars and purchasing shekels. In the final quarter of 2025 alone, these institutions reportedly offloaded around USD 13.5 billion. At the same time, foreign investor activity within Israel has continued to rise, further strengthening demand for the local currency.
No Relief for Consumers Despite Currency Gains
Despite the stronger shekel, there has been no corresponding decline in the prices of key goods and services. Fuel, vehicles, electrical and electronic products, and general consumer goods remain elevated. The cost of living has not eased, even for those Israelis who have managed to travel abroad following partial lifting of airspace restrictions.
This disconnect is expected to challenge upcoming consumer price index readings. However, importers have resisted lowering prices, citing inventory purchased when the dollar was stronger, along with increased operational and insurance costs. At the same time, ongoing political instability continues to erode the competitiveness of domestic industry.
Strategic Failure in Supporting Industrial Output
The report stresses that recent wartime conditions have reinforced the central role of industrial production as the backbone of the Israeli economy. Yet policymakers have, according to the analysis, neglected this sector at a critical moment. The critique highlights a flawed economic approach, arguing that support for industry should be treated not as a fiscal burden but as a strategic investment.
Urgent Policy Demands from Economists
Israeli economists are now calling on the central bank to implement immediate corrective measures. These include reducing interest rates to align with global trends and ease financing pressures on manufacturers. Additional recommendations involve activating mechanisms to absorb excess hedging liquidity from financial institutions and introducing a comprehensive strategy to improve sector competitiveness.
Proposed measures extend to tax reforms, such as allowing tax payments in US dollars, accelerating asset depreciation to 100 percent upon equipment acquisition, and expanding credit guarantee programmes to support industrial growth.
Inflation Pressures Persist
The consumer price index for March is expected to be released shortly, with estimates pointing to a 0.5 percent increase. Ofer Klein, Chief Economist at Harel Finance, forecasts a 0.4 percent rise, driven primarily by higher airfare, housing, and clothing costs. In contrast, food prices are expected to decline due to seasonal discounts linked to Jewish holidays.
Interest Rate Outlook Constrained by War Spending
The report concludes that, in the absence of the ongoing war with Iran and Lebanon and the expansion of the military budget by more than 35 billion shekels, interest rate cuts would have been more likely. However, Bank of Israel Governor Professor Amir Yaron is not expected to reduce rates in the coming month. Instead of three projected cuts by the end of 2026, expectations have now been revised to a single reduction, or at most two, potentially delayed until the second quarter of 2027.
