Shekel Set for 1-Week Low as Growth Fuels Interest Rate-Cut Bets

The shekel weakened for a fourth day on increased bets the Bank of Israel will lower borrowing costs in coming months to boost economic growth and stem the rally in this year’s best-performing major currency.

The exchange rate depreciated as much as 0.4 percent to 3.5421 a dollar and was trading at 3.5295 by 1:16 p.m. in Tel Aviv, trimming this year’s gain to 5.8 percent, the most among 31 major peers tracked by Bloomberg. One-year interest rate swaps, an indicator of investor expectations for rates over the period, fell 1 basis point to a 0.91 percent, below the current base rate of 1 percent.

The Bank of Israel, led by Karnit Flug, who was approved yesterday as the new governor, will probably leave interest rates unchanged at a meeting today, according to 23 of 24 analysts in a Bloomberg survey, after a cut last month. Central bank one-year Makam bills, which are sensitive to expected changes in rates, fell to 0.86 percent on Oct. 27 after Finance Minister Yair Lapid said Oct. 24 the shekel was “too strong.”

“The comments made by Lapid increased expectations in the market for measures to weaken the currency and boost growth including another interest-rate cut in coming months,” Rony Gitlin, head of spot trading for Tel Aviv-based Bank Leumi Le-Israel, said by phone today. “The outlook is deterring some investors, prompting them to buy dollars and sell shekels.”

The central bank reduced the key rate from 3.25 percent in 2011 and bought $835 million in September to curb the currency and bolster the country’s export-driven economy. The bank expects economic growth to slow to 3.4 percent this year from 3.6 percent this year.

Flug met with Lapid yesterday for their first working session since her appointment on Oct. 20, the Finance Ministry said in an e-mailed statement. Lapid said their talk underscored the necessity for the two to cooperate to tackle the economy’s challenges.

The yield on the nation’s benchmark bonds due March 2023 gained one basis point, or 0.01 percentage point, to 3.56 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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