Analysts: TASE and shekel have further to fall

In the final 90 minutes of trading after the Knesset passed the reasonableness standards law, the Tel Aviv 35 Index fell heavily, losing 2.21% on the day. In inter-bank trading after the Knesset passed the ‘reasonableness’ law the shekel weakened sharply. The shekel is up 1.25% against the dollar at $3.662/$ and up 0.84% against the euro at NIS 4.058/€.

Leader Capital Markets chief economist Yonatan Katz told “Globes” that the political uncertainty in Israel is the element driving the strong volatility on Israel stock and foreign exchange markets.

“We see that there is no macroeconomic element or even markets abroad that affect the exchange rate, the political uncertainty leads to strong fluctuations in the foreign exchange market. The market oscillates from optimism to pessimism and back again”.

After a period in which the Tel Aviv Stock Exchange (TASE) enjoyed particularly positive momentum and recorded the longest sequence of gains since the start of the year, the fear of the worsening of the negative sentiment in the markets is increasing. “The market has not fully absorbed the legislation and there is still room to fall in terms of shares on the stock exchange and the exchange rate of the shekel,” says Katz. Moreover, he predicts that the political situation will affect the rating companies’ forecasts on Israel’s credit level, and may even result in damage to Israel’s rating outlook. IBI Investment chief economist Rafi Gozlan agrees that the current situation in which there is no compromise and events are sliding into chaos, will harm the markets. He recalls the previous occasion in March that led to talks at the President’s residence but believes that even this type of solution would not be enough this time to finally calm the markets and reduce the gaps that the stock exchange has registered since the beginning of the year against its counterparts in the world. “Also the stoppage of the legislation in the previous round and the attempts at negotiations at the President’s residence did not lead to agreements, but to an attempt at unilateral legislation. Thus, a more reliable outline would be required to lead to further closing of gaps in relation to the global trend.”

Bank of Israel has refrained from intervention

Among economists, there is agreement that the Bank of Israel has not intervened in the foreign exchange market, in contrast to previous upheavals surrounding the legal reform in which there were rumors of the central bank’s intervention in the exchange rate. But is this about to change soon? In the Bank of Israel’s latest interest rate decision, the Governor Prof. Amir Yaron, was asked several times about the bank’s possible intervention in the dollar exchange rate, this after Bank of America’s report which proposed a change in the bank’s approach and recommended intervention in the foreign exchange market.

Published by Globes, Israel business news – en.globes.co.il – on July 24, 2023.

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