The New Israel Shekel continues to drop against the U.S. Dollar, breaking the 3.8 to the Dollar threshold over the weekend, its lowest rate since 2017. The Shekel has now lost 3% against the Dollar since the start of August alone; even though, the USD is not up against other major currencies. The Shekel lost more – 3% – of its value against the Euro since the start of August.
Even recent interest rate hikes made by the Bank of Israel have not helped to prop up the Shekel. And the Bank is not expected to raise rates again any time soon.
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And this is in spite of the fact that just a week ago the International credit ratings agency Fitch reaffirmed Israel’s “A+” sovereign credit rating while giving the country’s economy a “stable” outlook. However, the firm did have some bad news for Israel too, specifically regarding the country’s current political turmoil surrounding a controversial government judicial reform plan.
And most people site the unpopularity of the judicial reform plan proposed by Prime Minister Benjamin Netanyahu’s government as to blame for the drop in the Shekel’s value.
One source described as a financial markets expert told Globes, “The foreign exchange market is a speculators’ market and it reflects management of expectations. Psychology is a key factor here.”
The government’s judicial reform plan would significantly curtail the power of Israel’s Supreme Court to nullify legislation passed by the Knesset and also limit the authority of Israel’s attorney general. Israel’s opposition charges this would harm Israel’s democracy thereby eroding foreign confidence in the country and hurting its economy.
Israel’s opposition leaders have described the reform plan as a Coup d’état and have been calling Israel’s Prime Minister a dictator for wanting to end judicial reform of government actions and new laws.
As a result, tens of thousands of people have been protesting just about every Saturday night since the judicial reforms were first announced a few months, even blocking major highways.
And because of all of this, some foreign investors have been scared away from dealing with the country dubbed Startup Nation and even a few Israeli firms have taken money out of the country. And some Israeli entrepreneurs are looking to take their Israeli talent with them abroad to countries like Cyprus that offer tax incentives to attract foreign investment.
So, in spite of all other economic indicators, the Shekel continues to slide. And what can the Bank of Israel do to help?
Well, some observers expect that the Bank may step in and buy up lots of Shekels for Dollars and Euros that it keeps in reserve. This will mean fewer Shekels available on the currency markets and so the laws of supply and demand will set in. But such measures only ever make a temporary impact and the Shekel might not recover unless the judicial reform plan is scrapped entirely.
