Shekel Weakens Most in 2 Months on Central Bank Intervention Bet

Israel’s shekel fell the most in more than two months on bets the central bank will continue to buy more dollars to stem gains in the world’s best-performing major currency this year to safeguard the export-driven economy.

The shekel depreciated 0.9 percent, the biggest intraday drop since Sept. 19, to 3.5591 a dollar at 5:27 p.m. in Tel Aviv. That trimmed this year’s advance to 4.9 percent, the largest increase among 31 major currencies tracked by Bloomberg. Option traders are today the most bearish on the shekel in more than five weeks, three-month 25-delta risk reversal rates show.

Bets on currency intervention come as Bank of Israel Governor Karnit Flug said yesterday exports, which make up 34 percent of gross domestic product, will stay sluggish due to a strong shekel and a falloff in global demand. The central bank said last month it will buy $3.5 billion next year, up from about $2.1 billion in 2013, to slow demand for the shekel. Finance Minister Yair Lapid said Oct. 24 he’ll work with Flug to fight the gains in the currency.

“Foreign banks and some local banks are buying the dollar to take profits, but this may only be temporary,” Eytan Admoni, head of the international department at the Bank of Jerusalem Ltd., said by phone. “Expectations are that the central bank will continue to intervene to moderate further gains in the shekel.”

Traders are today paying a 1.49 percentage-point premium for contracts granting them the right to sell the shekel over options to buy the currency, three-month risk reversal rates show. That is the most since Oct. 11. The Finance Ministry this month executed two currency hedging deals and has reported $850 million in such transactions in recent months.

The central bank expects economic growth to ease from 3.6 percent this year to 3.4 percent next year, and expects a 1.1 percent decline in exports for 2013.

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