Israel’s Shekel, Bonds Gain as Central Bank Holds Base Rate

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Israel’s shekel reversed earlier losses and bonds advanced after the central bank kept its base lending rate unchanged for a sixth consecutive month.

The shekel traded 0.8 percent higher at 3.8408 per dollar at 5:27 p.m. in Tel Aviv after weakening as much as 1.8 percent earlier. The yield on government notes due October 2025 dropped 4 basis points to 2.08 percent, the lowest since June 1. The TA-25 Index of shares closed 3.5 percent lower at 1,568.68.

The Bank of Israel’s five-member monetary panel, led by Governor Karnit Flug, kept the benchmark rate steady at a record low 0.1 percent. Sixteen out of 18 analysts surveyed by Bloomberg had forecast the decision. The central bank has cut interest rates 13 times since 2011 to tame shekel gains and boost exports, which account for about a third of Israel’s $280 billion economy. The shekel dropped 2.4 percent last week, the biggest decline since the week ended Feb. 27.

“Flug is saving her monetary ammunition and will be waiting for the U.S. Fed policy decision next month,” Yonie Fanning, chief economist at ILS Brokers Ltd. in Tel Aviv, said by phone before the announcement. “If the Fed doesn’t raise rates next month we are likely to see the Bank of Israel lower rates in coming months to contain shekel gains.”

The Bank of Israel last reduced rates in February. Slower-than-anticipated economic growth in the second quarter and declining consumer prices are increasing investors’ expectations that the central bank will lower borrowing costs in the coming months.

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