Economist Ron Eichel Sees Dollar Fair Value at 3.40 NIS Amid Rate Cut Outlook
Dr. Ron Eichel estimates the fair value of the dollar at 3.40 NIS using the PPP model, pointing to potential interest rate cuts by the Bank of Israel and capital outflows as key drivers for future shekel depreciation.
The fair value of the US dollar against the shekel stands at approximately 3.40 NIS, according to Dr. Ron Eichel, a risk management and empirical macroeconomics expert at the Western Galilee Academic College. Speaking to the press, Eichel explained that he maintained this assessment even when the American currency traded around 2.80 NIS, viewing that strengthening of the local currency as a temporary market deviation that would eventually self-correct.
To determine this valuation, Eichel relies on the Purchasing Power Parity (PPP) model, which compares price levels across different countries. While exchange rates are ultimately tied to long-term price trends, short-term movements are heavily influenced by political forces and capital flows. Eichel warns that the exchange rate will not simply settle at the PPP estimate and could potentially overshoot beyond 3.50 NIS as market dynamics shift.
One of the primary drivers behind this outlook is monetary policy. Eichel projects that inflation in Israel will stabilize around the midpoint of the target at 2% or potentially lower, enabling the Bank of Israel to proceed with interest rate cuts throughout 2027, with the first potential reduction as early as November. As local interest rates decline relative to global economies, the diminishing attractiveness of holding shekels could encourage capital outflows, further weakening the local currency.
At the same time, investor sentiment regarding Israel remains a critical factor. Despite strong export figures, Eichel notes that foreign perception of the Israeli economy remains fragile, potentially resulting in postponed local investments. Additionally, Israeli institutional managers seeking exposure to artificial intelligence and global markets are expected to increase foreign asset allocations ahead of 2027, adding further downward pressure on the shekel.
