Shekel Gains Most in 11 Days as Central Bank Holds Rates

Israel’s currency appreciated the most in more than a week after the central bank maintained the base lending rate for the eighth straight month.

The shekel traded 0.5 percent higher, the biggest increase since Oct. 15, at 3.8769 per dollar at 5:34 p.m. in Tel Aviv. The yield on the benchmark government bond fell seven basis points to 1.99 percent and the TA-25 Index dropped 0.3 percent. Fourteen out of 15 economists surveyed by Bloomberg said the central bank would maintain rates.

The Bank of Israel’s five-member monetary panel, led by Governor Karnit Flug, kept the benchmark rate at a record low 0.1 percent, pointing to expectations of a pick-up in inflation and modest economic expansion as some of the considerations underlying its decision, despite a series of deadly attacks. Monetary policy will be “accommodative for a considerable time,” the committee said in an e-mailed statement. “Past experience shows that the wave of violence may have an effect on private consumption and on tourism, but that if it does not last long, the effect is expected to be moderate,” the committee said.

“While in the past, the Bank of Israel had lowered the rate even in response to much less concerning developments in inflation and growth, committee members still believe that the latest developments are strictly temporary,” Modi Shafrir, the chief strategist at Mizrahi Tefahot Bank Ltd. in Ramat Gan, Israel, said by phone before the announcement. “We still don’t rule out the possibility that rates will be cut in the coming months as we expect inflation to continue to surprise committee members to the downside.”

The central bank has cut interest rates 13 times since 2011 to tame a strong shekel and boost exports, which account for about a third of Israel’s $304 billion economy. Monday’s decision comes amid a surge of violence that has killed nine Israelis and more than 50 Palestinians this month. The attacks may negatively impact economic growth this quarter and could pressure the central bank to lower interest rates in the coming months, Shafrir said. Gross domestic product expansion slowed to a near standstill in the second quarter.

Before it's here, it's on the Bloomberg Terminal.