The national currency further dropped in value as much as 2% against the US dollar yesterday.
By Erin Viner
The development comes as the government of Israeli Prime Minister Benjamin Netanyahu pressed ahead with a plan to overhaul its judiciary that it maintains will end overreach into politics by the Supreme Court.
At the same time, both Prime Minister Netanyahu and Finance Minister Bezalel Smotrich have backed the independence of the Central Bank following criticism of its latest rate hike by Foreign Minister Eli Cohen.
The slide came despite another rate hike on Monday by the Bank of Israel, which raised its benchmark interest rate by half a percentage point to 4.25%, prompting the criticism by Jerusalem’s top diplomat and Likud member, who urged a process to halt further hikes.
Prime Minister Netanyahu instructed lawmakers from his Likud party to stop interfering with and speaking out against Bank of Israel Governor Amir Yaron and his interest rate policies.
Netanyahu issued a Tweet in defense of the Central bank’s independence and declaring: “Nothing will change it.”
Cohen also faced criticism by Finance Minister Smotrich. “One must not even hint at hurting the Bank of Israel’s independence because that is key to our economic stability,” he said at a conference in Jerusalem, after he tweeted that he would safeguard the bank’s autonomy against populism. He then went on to laud the judicial overhaul by the nationalist-religious government that has sparked nationwide protests and alarmed economists, legal experts and former security officials.
Seeing instability from the reform feud, economists and leaders in technology and banking have warned of investor and capital flight, with a weaker shekel aggravating already high living costs.
Downplaying those concerns, Smotrich insisted the reforms would boost business by cutting back unnecessary litigation. “If there will be temporary damage it won’t be because of the reform, it will be because of irresponsible campaigners who want to hurt the economy and then say ‘we told you so,” he said among some boos from the crowd.
Foreign Minister Cohen criticized Bank of Israel interest rates hikes while other Members of Knesset (MKs) expressed dissatisfaction with Governor Yaron over the hikes, which in turn have led to a big surge in mortgage rates. After the Premier’s admonition, Cohen posted a message on Twitter stating that he, too, supports Central Bank independence.
Yaron has taken a hard line in battling inflation, which hit a new 14-year high of 5.4% in January. The central bank raised interest rates by half a percentage point at a policy meeting on Monday to 4.25% – its eighth hike since last April.
The Governor has also warned the MKs who have been pushing the judicial revisions could weaken the Supreme Court, that institutional independence was vital for Israel’s sovereign credit rating.
Some financial analysts believe that part of the shekel’s recent depreciation versus the USD stems from political attacks on the Central Bank.
The shekel has weakened some 10% the past month – primarily attributed to the planned judicial changes.
In suffering its largest one-day move since September, the shekel reached as low as 3.649 per USD – marking its weakest level since April 2020 and down 5.5% in February – but moved back to 3.637 per dollar in afternoon trading.
It also fell 1.5% versus the euro. Government bond prices were down as much as 1.8% and Tel Aviv share indices slipped 2.1%.
Israel’s parliament late on Monday held the first of three readings needed to approve changes to the judiciary, that would give the government greater sway on selecting judges while limiting the Supreme Court’s power to strike down legislation.
Following the vote, Citibank said it was going long USD versus the Israelik, targeting 3.95 to the dollar.
“The (Israeli) currency continues to remain under pressure from local political noise,” Citi strategists Louis Costa and Bhumika Gupta wrote in a client note. “The political situation seems likely to get more volatile in the coming weeks as judicial reforms head for a second reading in the parliament,” they added.
Critics say Netanyahu – who is on trial on graft charges which he denies – is seeking legal changes that will hurt Israel’s democratic checks and balances, foster corruption and bring diplomatic isolation.
In an interview with Reshet13 on Monday, Bank of Israel Governor Amir Yaron urged policymakers to safeguard institutional autonomy, both of the central bank and the Supreme Court, and reach broad understandings on the overhaul.
Successive polls have shown a minority of Israelis support the proposed changes, with many backing compromise. Tens of thousands of Israelis have protested the plans as anti-democratic during cross-country demonstrations for the past eight weeks.
Yesterday, Prime Minister Netanyahu called for a dialogue with his opponents, marking a shift from his earlier derision of those protesting the plans.
“So I stand up and I call from here: Let’s talk – here and now – without preconditions,” he said in a video statement circulated on social media. “No excuses – so that together we will achieve a broad agreement for the benefit of all the citizens of Israel, for the benefit of our country.”
Israel’s head of state, President Isaac Herzog, has repeatedly urged the government and opposition to hold compromise talks, warning the country faces the risk of a constitutional collapse if the divisions continue.
But while both sides have voiced willingness, they have remained far apart on the terms of any dialogue, with the opposition calling for the legislation to be put on hold in parliament before talks can begin.