Israel Set to Boost Dollar Buying on Stronger Shekel, Leumi Says

The shekel has appreciated to the strongest in almost six months, boosting chances the Bank of Israel will increase its dollar purchases for the first time since July, according to Bank Leumi Le-Israel Ltd.

The shekel rose 0.447 percent against the currency basket used by the central bank to 82.1 at the close on Monday. That’s the strongest level since August 15, the month after the bank last intervened beyond its established dollar purchase plan. Israel’s currency has now erased more than half of its depreciation between an August peak and a December low.

“We can expect the Bank of Israel to step up its interventions” should shekel gains continue, David Reznik, head of fixed-income research at the capital markets division of Bank Leumi, the country’s second-biggest lender by assets, said by phone from Tel Aviv on Monday. “Economic fundamentals are pro-shekel and continue to support its value, especially the surpluses in the current account, and the ongoing direct investments by foreign residents in Israeli companies.”

Israel renewed dollar purchases in 2013 and cut interest rates to stem the shekel’s world-beating advance, which was slowing the country’s export-driven economy. The central bank pledged to intervene in the foreign exchange market when rate fluctuations deviate from fundamental economic conditions, or when the market is “disorderly,” it said in December.

Rate Cuts

The Bank of Israel bought $5.6 billion of dollars in the past two years to offset the effect of the start of natural gas production on the country’s balance of payments. This year it will purchase $3.1 billion under the same program, the bank said Dec. 9. The last deviation from the purchase plan was July, when it bought an additional $1.1 billion as the shekel headed for the highest since June 2011.

The shekel weakened the most since 1998 last year after the central bank trimmed borrowing costs to a record low of 0.25 percent in August.

“Renewed appreciation of the shekel against the basket of currencies increases the chances of another interest rate cut of 10 basis points in coming months,” Modi Shafrir, chief strategist at United Mizrahi Tefahot Bank’s finance division, said by phone from Ramat Gan on Monday. “The Bank of Israel will also need to boost its intervention in the FX market, otherwise inflation will remain well below the target range in the coming year.”

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