Israel’s Shekel Too Strong, Central Bank Markets Chief Says
Israel’s Shekel Too Strong, Central Bank Markets Chief Says
(Bloomberg) --
The Bank of Israel has considered tools, including negative interest rates, to halt the shekel’s appreciation and avert an economic slowdown, according to one of the people who decides Israel’s monetary policy.
The bank has examined options that also include large acquisitions of government bonds to weaken the currency and bring inflation closer to the central bank’s target, Andrew Abir, a member of the five-person monetary policy committee, said in a telephone interview on Thursday. The shekel has strengthened 7.8% this year against the dollar, second-most among 31 major currencies tracked by Bloomberg.
The central bank for now has opted for more purchases of foreign currencies to stem the shekel’s rise, Abir said. The Bank of Israel had recently restarted purchases after abstaining for most of this year. Though Israel’s economic growth continues to outpace most developed nations, a strong currency would make Israeli exports less competitive, a situation that could be exacerbated should international commerce deteriorate in the wake of global trade spats.
It’s difficult to say that the shekel’s appreciation is “justified” given the fundamental picture of Israel’s economy, Abir said, adding that the currency is trading in “an area we feel uncomfortable.”
“The fact that we are intervening in the market is a sign that it’s gone too far,” he said.
The shekel weakened 0.3% to 3.4765 to the dollar at 6:01 p.m. in Tel Aviv.
In weighing each option, the central bank is studying effects where such tools been deployed, namely in the Eurozone, Abir said. While Israel doesn’t suffer from the same systemic risks -- such as a weak currency or highly indebted banks -- a domestic political crisis has gripped the country for close to a year, limiting the government’s ability to contend with a growing budget deficit and take decisions on investment in key infrastructure.
Continuation of Israel’s political logjam could force the central bank to act more forcefully to stave off an economic deceleration, which could come as soon as six months to a year from now, Abir said.
“We can’t wait until we see it in the data,” Abir said, referring to a slowdown in growth. “By then, it will be too late.”
To contact the reporter on this story: Yaacov Benmeleh in Tel Aviv at ybenmeleh@bloomberg.net
To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Benjamin Harvey, Paul Abelsky
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