Israeli currency getting cheaper due to political instability
2023.02.22 11:11
Israeli currency getting cheaper due to political instability
By Ray Johnson
Budrigannews.com – On Wednesday, a plan to overhaul Israel’s judiciary led to a 1.5% decrease in the shekel’s value against the dollar. This continued a rapid decline that may necessitate intervention from the central bank.
After losing 1.6% on Tuesday, the shekel fell to 3.68 against the US dollar, its lowest level since March 2020.
The shekel has lost nearly 10% since reaching a high of 3.34 on January 25 due to speculation that Israeli businesses will close their bank accounts and that foreign investors will avoid Israel due to the proposed judicial changes.
The reform would restrict the Supreme Court’s ability to overturn legislation while simultaneously giving the government more influence over the selection of judges. On Wednesday, the preliminary approval of new bills in parliament included one that would prevent the Supreme Court from intervening in ministerial appointments.
Jonathan Katz, chief economist at Leader Capital Markets, stated, “The weakening shekel trend will most likely continue as long as no reasonable compromise is reached on the judicial reform.”
He said that foreign exchange intervention could “smooth out sharp volatility,” but the Bank of Israel didn’t like it.
The central bank, which declined to comment, has purchased tens of billions of dollars over the past 15 years to stop the shekel from rising too quickly. Its foreign exchange reserves currently total $201 billion.
Katz stated, “We could see the Bank of Israel hiking rates to 5% in the next rate decision (April 3), and possibly earlier, if this (shekel depreciation) continues rapidly.”
Israel’s policymakers voted on Monday to raise the benchmark interest rate by 50 basis points to 4.25 percent, making it the eighth increase in a row. In January, Israel’s annual inflation rate was at its highest level in over 14 years. However, the judicial change plan, which received its first vote in parliament on Monday, overshadowed the move.
Citi stated that it was going long the dollar-shekel with a target of 3.95 to the dollar following the vote.
Critics claim that Prime Minister Benjamin Netanyahu, who is currently on trial for graft but denies the charges, is seeking legal changes that will weaken Israel’s democratic checks and balances, encourage corruption, and isolate the country diplomatically.
The changes are needed, according to those who support them, to curb what they see as an activist judiciary that goes beyond its authority to interfere in politics.
Prices for government bonds were down as much as 1.9 percent, and the main Tel Aviv-125 share index was down 1.1 percent.
