Shekel World’s Worst Currency as Flug Hints at Negative Rate

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The shekel depreciated the most among a basket of global peers after Bank of Israel Governor Karnit Flug said the country may cut its benchmark interest rate below zero if circumstances warrant.

The currency weakened 1.8 percent to 3.9352 per dollar at 5:32 p.m. in Tel Aviv, the biggest drop among 31 major currencies tracked by Bloomberg. Flug’s comments in interviews to Israel’s three major TV news programs late on Tuesday came a day after the bank’s policy committee held the base rate steady for a sixth-consecutive month, while warning that risks to the economy and prices have increased.

“Flug’s comments are part of the central bank’s verbal package of being dovish to try and weaken the shekel,” London-based Dorothee Gasser, chief economist at ING Bank NV said by phone on Wednesday. “The central bank wants to keep the weak momentum in the shekel on track with this message.”

Another rate cut would be the 14th since 2011 as the central bank grapples with a strong shekel as well as falling consumer prices. The economy slowed in the second quarter as the currency weighed on exports, which account for about a third of Israel’s $280 billion economy.

Aside from negative interest rates, “there are lots more tools” in central bank toolkits, Nathan Sussman, the central bank’s research director, said earlier on Tuesday. He cited foreign currency purchases as an example.

The Finance Ministry said it executed $300 million in hedging transactions on Monday and Tuesday, taking this year’s deals to more than $1 billion.

The shekel’s 14-day Relative Strength Index rose to 70, the highest level since Dec. 8. A reading above 70 indicates to some investors that a currency is oversold.