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Israel Shekel Gains to 2-Week High on Bet Reforms to Spur Growth

The shekel appreciated to the strongest level in more than two weeks on investor bets the government will implement reforms to boost economic growth.

The shekel rose 0.1 percent to 3.6059 a dollar, at 2:18 p.m. in Tel Aviv, the highest since April 8, the day the central bank bought U.S. dollars for the first time in almost two years in a bid to stem the currency’s rally. The currency is the second-best performer after the Mexican peso in 2013 among a basket of 31 major currencies tracked by Bloomberg.

Prime Minister Benjamin Netanyahu said yesterday strikes won’t stop planned economic reforms to increase competition at ports, break down corporate monopolies and lower the cost of living. The economy will expand 3.4 percent this year after 3.2 percent in 2012, according to the median estimate of 14 analysts compiled by Bloomberg.

“The state’s commitment to growth-promoting reforms and the country’s interest-rate gap with major economies are attracting investment in the shekel also by foreign investors,” Rony Gitlin, head of spot trading at Bank Leumi Le-Israel Ltd. in Tel Aviv, said by phone. “If the currency gets below the 3.60 level we may see the likelihood that the central bank will again intervene.”

Employees at El Al Israel Airlines Ltd. (ELAL) and two other local airlines walked out April 21 after the government approved an “Open Skies” agreement with the European Union to add new routes and increase competition. The strike ended the next day after the Finance Ministry agreed to cover the companies’ added security costs.

Investment Boost

The gap between Israel’s benchmark interest rate and those in major economies is spurring investment in the country’s bonds, Bank of Israel Governor Stanley Fischer said on April 23. The yield on the 4.25 percent benchmark notes due March 2023, which was unchanged at 3.68 percent, slumped 23 basis points so far this month, headed for the biggest drop this year.

The Bank of Israel has gradually reduced the borrowing rate from 3.25 percent in 2011 in an effort to shore up the economy amid the European debt crisis. The monetary committee, led by Fischer, 69, held the rate at 1.75 percent last month as policy makers focused more on rising home prices than on the pace of recovery in the global economy.

One-year interest-rate swaps, an indicator of investor expectations for rates over the period, fell for the first time since April 19, declining one basis point to 1.60 percent.

To contact the reporter on this story: Sharon Wrobel in Tel Aviv at swrobel4@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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