Rush Resumes to Buy Foreign Currency

Israeli investors, demonstrating a marked lack of confidence in government-backed bank shares, resumed their rush to buy foreign currency today even though the price was much higher than before the 23 percent devaluation of the Shekel earlier this month.

There were long queues at the banks where Dollars and other foreign currencies were being sold. But money exchangers in East Jerusalem said the demand was nothing like the panic buying before devaluation. Nevertheless, the renewed liquidation of bank shares forced the government to allocate another $80 million to maintain their value.

So far this month, the Treasury has poured $280 million into the share market, thereby increasing the overall money supply. This is the exact opposite of the government’s declared policy to cool off the economy and ease record inflation.

ANGRY PUBLIC REACTION

Investors apparently do not believe the Treasury can continue propping up bank stocks and are switching to Dollars. There was also an angry public reaction today to the decision by commercial banks to increase interest on credit by 25 percent. Dan Propper, a member of the presidium of the Manufacturers Association, warned that reduced credit and higher interest would cut off investment in industry and slow down economic growth.

According to figures released today by the Association of Chambers of Commerce, the effective interest on overdrafts will go as high as 250-320 percent annually. It presently stands at 126 percent.

Overdrafts allow bank customers to write checks in excess of amounts in their checking accounts, for which privilege they are charged a high rate of interest. The chambers of commerce said the business community could not cope with such rates and noted that many retailers are experiencing a slump in sales.

Bank sources said the interest rates were hiked because the predicted rate of inflation is much higher than previously anticipated. Inflation is expected to rise by 40 percent in the last quarter of the year, largely because of the devaluation of the Shekel.