- Citigroup strategists target an 8% decline in the currency
- Central bank deputy governor mentioned uncertainty after hike
According to Bloomberg article published on February 21, 2023, Israel’s shekel plunged as concerns over a judicial overhaul eclipsed a bigger-than-expected interest-rate hike by the central bank.
The shekel fell about 2% on Tuesday, the most since September and the biggest loss among the world’s major currencies. Earlier in the day, lawmakers took a first step toward approving a plan that would hand Israel’s government more power over the country’s top court, a move that’s sparked waves of protest. The measure will still need to pass two more votes before becoming law.
After lifting the benchmark interest rate on Monday by 50 basis points to 4.25%, central bank Deputy Governor Andrew Abir acknowledged that “political uncertainty” has affected the nation’s exchange rate and equity markets. The political backdrop has Citigroup Inc. betting against the shekel, targeting an 8% drop to 3.95 per dollar.
“Despite Bank of Israel’s mildly surprising 50-basis-point hike yesterday, the currency continues to remain under pressure from local political noise,” Citigroup strategists Luis Costa and Bhumika Gupta said in a report. “The political situation seems likely to get more volatile in the coming weeks as judicial reforms head for a second reading in the parliament.”
Despite the prospect of higher interest rates, the currency’s forecasted real-rate valuation still remains poor compared with many emerging-market peers, discouraging carry flows in shekels, the strategists said.
The currency traded at 3.6499 per dollar, the weakest since April 2020, at 2:54 p.m. in Jerusalem.
“It’s the judicial reform continuing to weigh on the market,” said Peter Kisler, a London-based hedge fund manager at Trium Capital. “The magnitude of the currency’s move has been quite large, but it can still weaken further.”
