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Shekel Weakens Most Since January as Stocks Rise on Rate Cut

May 13 (Bloomberg) -- The shekel weakened the most in more than four months after the Bank of Israel’s surprise interest rate cut and vow to buy as much as $2.1 billion in 2013 to curb the currency’s appreciation. Stocks rose the most in almost three months.

The shekel depreciated 0.9 percent to 3.6026 a dollar, the most since Jan. 3, at 5:04 p.m. in Tel Aviv. The currency has strengthened 8.9 percent in the past six months, the second-best performer after the Mexican peso among 31 major currencies tracked by Bloomberg. The TA-25 Index of stocks climbed 1 percent, the most since Feb. 20. Israel’s benchmark 10-year bonds also rose.

“This is welcome news for the capital markets,” said Jonathan Katz, a Jerusalem-based economist for HSBC Holdings Plc. “I thought the central bank would loosen monetary policy, but this came before we expected. It complements a tightening of fiscal policy.”

The central bank cut the benchmark lending rate by a quarter point to 1.5 percent and announced a new program to purchase foreign currency, according to an e-mailed statement. The shekel’s appreciation, the start of natural gas production from the Tamar field and interest rate cuts by regulators, including the European Central Bank, were cited among reasons for the decisions.

The Tamar field, which began production at the end of March, will put Israel on the road to energy independence and improve its current-account balance by as much as $3 billion this year, according to the central bank. For every $1 billion improvement in the current-account, the shekel appreciates about 1 percent, the Bank of Israel estimates.

The yield on the 4.25 percent benchmark notes due March 2023 fell three basis points, or 0.03 percentage point, to 3.51 percent.

To contact the reporter on this story: David Wainer in Tel Aviv at dwainer3@bloomberg.net

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

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