Israeli exporters from Elbit Systems Ltd. (ESLT) to Israel Chemicals Ltd. (ICL) led the benchmark stock index higher after the central bank lowered interest rates for the first time in more than two years.
Israel’s TA-25 advanced 1.4 percent after yesterday’s surprise decision pushed the shekel down to the lowest level in eight months, helping make overseas sales more competitive. The currency rebounded today on speculation lower borrowing costs will help keep the economy buoyant amid a global slowdown.
Citigroup Inc. and Goldman Sachs Group Inc. said today they expect central bank Governor Stanley Fischer to lower interest rates further by year-end, adding to pressure on the currency, which is down 4.9 percent against the dollar this year. Elbit Systems, Israel’s largest non-government defense contractor, jumped to the highest level since Aug. 24 while Israel Chemicals, which harvests minerals from the Dead Sea to make fertilizers advanced as much as five percent during the day.
“The sectors that tend to benefit most from the rate cut are exports and technology,” Gilad Alper, an analyst at Excellence Nessuah Investment House Ltd., said by telephone from Ramat Gan, Israel.
Israel joined countries including Turkey and Brazil in reducing borrowing costs as the global economy slumps. Two-year interest rate swaps, an indicator of investor expectations for the benchmark in that period, plunged 18 basis points yesterday to 2.75 percent, the lowest in a year. The swaps rose two basis points today.
The benchmark Tel Aviv index rose 1.4 percent at the 4:30 p.m. close, to 1,077.79, the highest level since Sept. 21.
Elbit Systems, which gets most of its orders from the U.S., climbed 4 percent to 149.5 shekels, or the equivalent of $40.44.
The company received 32 percent of its income from the U.S. last year, according to data compiled by Bloomberg. Elbit Systems said yesterday its board authorized the repurchase of as many as 1 million shares over the next year.
Israel Chemicals, which extracts minerals from the Dead Sea to make fertilizer, rose the most in two days, climbing 2.6 percent to 44.50 shekels. Sales to Europe, Asia and North America accounted for more than half of the company’s 2010 revenue, according to data compiled by Bloomberg.
Nice Systems Ltd. (NICE), a maker of digital surveillance and monitoring systems rose to its highest level in almost a week, climbing 4.4 percent to 117.60 shekels, or $31.81.
Fischer lowered the rate by 25 basis points to 3 percent, the Jerusalem-based central bank said on its website yesterday. Only two of the 22 economists surveyed by Bloomberg forecast the decision, while the remainder predicted no change. Investor bets on a rate cut helped push yields on the government’s benchmark shekel bond to the lowest level in two weeks.
More than $3.5 trillion was wiped from equity values globally last week amid concern policy makers are struggling to contain a debt crisis that has Greece teetering on the edge of default, and threatens to spill into other economies.
The International Monetary Fund reduced its forecast for global growth on Sept. 20 and predicted “severe” repercussions if Europe fails to contain its debt crisis or U.S. policy makers deadlock over a fiscal plan.
Israeli annual inflation slowed to 3.4 percent in August from a high this year of 4.3 percent in March. The government’s annual target range is 1 percent to 3 percent. Economists’ 12- month inflation expectations declined to 2.3 percent in September, the lowest since February 2010.
The rate cut could signal that the Bank of Israel is expecting a slowdown in the economy with lower company profits, said Terence Klingman, the head of research at Meitav Brokerage in Tel Aviv. “The Bank of Israel is expecting a weakness in the economy which will hurt company profits.”
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