Shekel Appreciates to Three-Week High as Rate Gap Boosts Demand

The shekel strengthened to a three-week high as the interest-rate differential between Israel and major economies attracted investors to government bonds, boosting demand for the currency.

The shekel rose as much as 1 percent to 3.6296 a dollar, the strongest level since May 14, before trading at 3.6339 at 4:49 p.m. in Tel Aviv. The currency gained 2.8 percent this year, making it the best performer among 31 major currencies tracked by Bloomberg. The central bank today purchased “small amounts” of dollars for a second time this week, said Tom Gerszbejn, a currency trader at Union Bank of Israel (UNON) Ltd. in Tel Aviv. He estimated the purchase at less than $50 million.

Interest rates at record lows in the U.S. and Europe are strengthening the shekel and have prompted the Bank of Israel to buy dollars in April for the first time in almost two years to prevent gains from undermining growth in the export-driven economy. The yield on the benchmark 4.25 percent bonds due March 2023 fell for a second day, declining one basis point, or 0.01 percentage point, to 3.74 percent.

“Foreign investors are buying the shekel and the country’s government bonds as Israel’s rate differential with major economies is still attractive,” Eytan Admoni, head of the international department at the Bank of Jerusalem (JBNK) Ltd., said today by phone. “Berkshire’s purchase of Iscar also added to currency inflow driving appreciation.”

Gas Offset

Israeli posted a budget surplus of 900 million shekels ($248 billion) in May due to a one-time tax receipt of $1.7 billion generated from Berkshire Hathaway Inc. (BRK/A)’s purchase of a 20 percent stake in Israel’s Iscar, the Finance Ministry said today.

The central bank, led by Governor Stanley Fischer, last month cut interest rates by a cumulative 0.5 percent to 1.25 percent, a three-year low. The bank bought $950 million in foreign currencies in May, including $250 million under a $2.1 billion purchase program intended to offset the effect on exchange rates from natural gas production, the central bank said today. Currency reserves rose to $77.7 billion last month from $77.1 billion in April.

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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