Shekel depreciates sharply, jeopardizing rate cut

Shekel depreciates credit: Tali Bogdanovsky
Shekel depreciates credit: Tali Bogdanovsky

The strengthening dollar worldwide, regional tensions and reports that Israel will exceed its fiscal deficit target are all weakening the shekel.

The shekel is depreciating sharply today against the world's major currencies. This afternoon, the Bank of Israel set the representative shekel-dollar rate up 0.928% from Monday, at NIS 3.697/$, and the representative shekel-euro rate was set 0.544% higher at NIS 3.972/€. In late afternoon inter-bank trading the shekel-dollar exchange rate rose a further 0.2% to NIS 7.03/$ and the shekel-euro rate was 0.3% higher at 3.982/€.

The Israeli currency is weakening after reports that Israel will not be able to meet the target fiscal deficit of 6.6% and that it is possible that it could jump to higher than 8%. In addition the targeted killing attributed to Israel in Damascus has raised concerns about an escalation of the fighting in the north.

Bank Leumi head of markets strategy Kobby Levi tells "Globes" that the shekel is weakening mainly because of demand from foreign traders. "As part of the global trend of the strengthening of the dollar, which supports a rise in returns on government bonds (returns on 10-year bonds have risen to 4.35%), and a slight fall in futures on the main US share indices."

Mizrahi Tefahot Bank chief economist Ronen Menachem agrees that the weakening of the shekel reflects the strengthening of the dollar on world markets and mentions that the US purchasing managers index, which was stronger than expected, does not sit well with interest rate cates.

In addition, Menachem says that part of the depreciation stems from, "The tendency for declines on the US stock markets. The local security incidents over the past day (reports from Damascus and the incident in Gaza where foreign aid workers were killed) have also had an impact as well as the domestic political disputes. However, this is not a sharp enough depreciation for the Bank of Israel to intervene."

The current depreciation comes at an inconvenient time for Israel. The Bank of Israel's interest rate decision is expected next Monday, and Bank of Governor Prof. Amir Yaron has pointed to the stability of the financial markets, especially the foreign exchange market, as a main component in the question of whether to continue easing monetary policy. In the event that the depreciation persists, then the Bank of Israel Monetary Committee will meet on Sunday for its two-days of discussions before deciding on the interest rate, and it is quite possible that the Bank of Israel might decide to wait with interest rate cuts until later in the year.

Published by Globes, Israel business news - - on April 2, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.

Shekel depreciates credit: Tali Bogdanovsky
Shekel depreciates credit: Tali Bogdanovsky
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