Shekel rate pricing in political compromise say analysts

Israel’s Supreme Court, sitting as the High Court of Justice, has convened today with all fifteen justices of the court on the panel, to hear petitions that the law abolishing the reasonableness standard for ministerial and government decisions should be struck down. The outcome of the hearing, should the court decide to strike down the law, which is defined as a basic law, could plunge Israel into a constitutional crisis. Consequently, the local financial markets have been volatile in advance of the fateful day.

Yesterday, the shekel weakened slightly. The shekel-dollar representative rate was set 0.03% higher, at NIS 3.8450/$, and the shekel-euro rate was set 0.14% higher, at NIS 4.1233/€. In this morning’s trading, the shekel is considerably stronger. The shekel-dollar rate is down 1.01%, at NIS 3.8061/$, and the shekel-euro rate is down 1.0%, at NIS 4.0819.

So far this month, the shekel has weakened against the US dollar by 0.3%, reaching NIS 3.85/$ at one point last week. Market analysts calculate the risk premium priced into the exchange rate at about NIS 0.50, meaning that, were it not for the political crisis, the shekel-dollar rate would be at around NIS 3.4-3.5/$.

Modi Shafrir, chief financial markets strategist at Bank Hapoalim, writes in his market review: "Israel’s risk premium continues to rise on the foreign exchange market, and also remains high on the local stock market."

Nevertheless, the shekel began to strengthen towards the close of trading yesterday, as rumors again circulated of a compromise on the political front. Prime Minister Benjamin Netanyahu said yesterday that he would "exhaust every possibility" of reaching broad consensus on changes to Israel's legal system, while Benny Gantz, leader of the opposition National Unity faction said that he would consider a compromise if it preserved democracy.

Ronen Menachem, chief markets economist at United Mizrahi Tefahot Bank, told "Globes": "It must be remembered that the political reality is very fluid, and the shekel is the first thing to respond strongly to developments in that arena, in either direction."

Unless there is a move towards greater political certainty that calms the markets, market analysts do not rule out the possibility of further depreciation of the shekel, with levels of NIS 3.9/$ and even NIS 4/$ seen not out of the question. "In the new normal on the foreign exchange market, in which there can be daily movements of half a percentage point in either direction, that is certainly conceivable," Menachem concluded.

Published by Globes, Israel business news - en.globes.co.il - on September 12, 2023.

Shekel rate pricing in political compromise say analysts

As the fateful hearing of petitions against the law abolishing the reasonableness standard begins, rumors of compromise on legal system reform have been circulating.