The Bank of Israel said it would sell up to $30 billion in foreign currency in order to prevent the total collapse of the shekel.
By World Israel News Staff
The shekel plunged to its lowest rate against the U.S. dollar in nearly a decade, following the outbreak of Israel’s war with the Hamas terror group.
On Monday, the exchange rate officially reached 1 US dollar to 4 shekels, signaling the worst performance by the Israeli currency since 2015.
In a media statement, Israel Discount Bank chief economist Nira Shamir appeared to downplay the news, claiming that the Jewish State was experiencing an economic slowdown even before the onset of the conflict.
“The September CPI index points to the fact that the economy was slowing even before the war broke out,” she said.
“This strengthens our assessment that the Bank of Israel will lower interest rates by 50 basis points at the upcoming decision in the current situation of a sharp slowdown in growth in general and private consumption in particular.”
Last week, the Bank of Israel said it was readying contingency plans to prevent the shekel’s value from falling further, pleading to take steps to “provide necessary liquidity for the continued proper functioning of the markets.”
The Bank of Israel said it would sell up to $30 billion in foreign currency in order to prevent the total collapse of the shekel.
However, Israeli finance experts were torn regarding the best route to mitigate the financial fallout from the ongoing conflict.
Chen Herzog, chief economist at BDO Consulting Israel, told Hebrew-language economy news outlet Globes that the “Bank of Israel will have to cut interest rates, while at the same time the government has to put together a broad plan for fiscal expansion and a change in national economic priorities.”
Herzog’s suggestion was directly contradicted by Bank Hapoalim chief economist Victor Bahar, who wrote in a recently published market survey on the impact of the war that “if the interest rate is cut sharply, depreciation pressure on the shekel will grow.”
Bahar added that “selling foreign currency is not something that central banks are keen to do, because it can signal distress, and in certain cases can even achieve the opposite of the intended result.”