Shekel Gains a Third Day Before Israel Interest Rate Decision

Israel’s shekel gained for a third day on bets the central bank, led by Governor Stanley Fischer, will leave interest rates unchanged after a surprise rate cut earlier this month.

The shekel strengthened 0.2 percent to 3.6873 a dollar at 4:31 p.m. in Tel Aviv. The currency appreciated 4.7 percent in the past six months, the best performer among 31 major currencies tracked by Bloomberg. The yield on the 4.25 percent notes due in March 2023 was unchanged at 3.57 percent.

Thirteen of 23 analysts surveyed by Bloomberg forecast policy makers will keep the benchmark rate at 1.5 percent today. The remainder say the monetary panel will reduce rates to 1.25 percent. To stem the shekel rally and bolster exports, which make up 40 percent of economic output, the Bank of Israel on May 13 cut borrowing costs by 25 basis points and announced a program to buy foreign currency. The shekel has weakened 3.2 percent since.

“The central bank is likely to save its ammunition and leave interest rates unchanged today after the surprise reduction this month succeeded in its target to weaken the shekel,” Alex Zabezhinsky, chief economist at Tel Aviv-based DS Securities & Investments Ltd., said by phone.

Governor Fischer used his tie-breaking vote for the first time to restrict this month’s rate cut to 0.25 percentage point, as half the bank’s monetary panel pressed for a 50 basis-point reduction. Committee members who supported Fischer argued the “moderate reduction” would be sufficient until the meeting today when “the effect” would be analyzed.

One-year interest swaps, an indicator of investor expectations for rates over the period, were unchanged at 1.28 percent. They have dropped 28 basis points this month.

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