In the latest financial developments, the Israeli shekel has experienced a marked depreciation against major global currencies, primarily driven by a confluence of international and regional factors. The notable appreciation of the dollar on the global stage, coupled with heightened regional tensions and mounting concerns over Israel's fiscal health, has exerted downward pressure on the shekel.
The Bank of Israel recorded a significant depreciation, with the shekel-dollar exchange rate climbing by 0.928% to NIS 3.697/$, and the shekel-euro rate increasing by 0.544% to NIS 3.972/ā¬. Further fluctuations were observed in late afternoon inter-bank trading, with the shekel-dollar and shekel-euro rates witnessing additional increases.
Protest erupt in Israel after THE BANK OF ISRAEL demands ultra Orthodox men be drafted in the militaryhttps://t.co/7hxhXAEntT pic.twitter.com/8Pn0WQrbL8
ā Citizenwatchreport (@Citizenwatchrep) April 1, 2024
The downturn in the shekel's value is closely linked to apprehensions regarding Israel's ability to adhere to its fiscal deficit target, which is anticipated to exceed the initial 6.6% projection, potentially surpassing 8%. This fiscal uncertainty, alongside the ramifications of a targeted operation in Damascus attributed to Israel, has fueled speculations about an escalation in regional hostilities, contributing to the currency's instability.
Kobby Levi, Head of Markets Strategy at Bank Leumi, attributes the shekel's depreciation to a surge in demand from foreign traders, emphasizing the global trend towards dollar strengthening. This trend has been reflected in increased returns on government bonds and a modest decline in futures on major US stock indices. Ronen Menachem, Chief Economist at Mizrahi Tefahot Bank, concurs, highlighting the impact of the robust US purchasing managers index and the general downturn in US stock markets. He also noted the influence of local security incidents and domestic political turmoil on the shekel's valuation, though he believes the current depreciation is not significant enough to warrant intervention by the Bank of Israel.
This financial turmoil arrives at a critical juncture for Israel's economic policy decision-making. The Bank of Israel is poised to make its interest rate decision imminently, with Governor Prof. Amir Yaron previously underscoring the importance of financial market stability, particularly in the foreign exchange market, in guiding monetary policy adjustments. The ongoing depreciation of the shekel poses a challenge to the potential easing of monetary policy.
Shekel depreciates sharply, jeopardizing rate cut: The strengthening dollar worldwide, regional tensions and reports that Israel will exceed its fiscal deficit target are all weakening the shekel. https://t.co/RHby87Ava9 Globes pic.twitter.com/lv2vdRguQH
ā Jewish Community (@JComm_NewsFeeds) April 2, 2024
Should this trend persist, the Monetary Committee of the Bank of Israel may opt to defer interest rate cuts, potentially adjusting its monetary policy approach later in the year after further assessment. This situation underscores the intricate interplay between fiscal discipline, geopolitical dynamics, and monetary policy in shaping the economic landscape of Israel.
