The Israeli shekel is headed for the second-best performance among major currencies this quarter as the country prepares to start natural gas flows and after the central bank held interest rates.
The currency has appreciated 5.5 percent against the euro and 2.4 percent versus the U.S. dollar since January, second only to the Mexican peso among 31 major currencies tracked by Bloomberg. The shekel fell 0.1 percent to 3.6482 to the dollar at 1:04 p.m. in Tel Aviv. Israel’s benchmark 4.25 percent bonds due March 2023 yielded 3.88 percent, down 12 basis points, or 0.12 percentage point, this week.
Prospects that offshore gas flow at the Tamar field will start as soon as this week are supporting the shekel, according to Modi Shafrir, chief economist at Tel Aviv-based I.L.S. Brokers. “Gas flow is going to have a big impact on the balance of payments,” Shafrir said by phone, also citing the central bank’s rate decision and euro weakness versus the dollar.
The shekel has benefited from relatively higher interest rates compared with Israel’s main trading partners, the U.S. and Europe. The Bank of Israel kept its benchmark rate at 1.75 percent for a third month on March 24, compared with benchmark rates of 0.75 percent at the European Central Bank and near-zero at the Federal Reserve.
Israel’s foreign currency balance fell to $77.3 billion in February from a record $78.4 billion a month earlier. Gas flows from the Tamar field will start this week and have a “tremendous impact” on Israel’s gross domestic product, Energy Minister Silvan Shalom yesterday. The economy may grow 3.8 percent this year, including one percentage point from gas production, according to Bank of Israel forecasts.
One-year interest-rate swaps, an indicator of investor expectations for rates over the period, were unchanged at 1.63 percent, having gained four basis points this week. The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, rose 0.1 percent to 285.38.
The two-year break-even rate, the yield difference between inflation-linked bonds and fixed-rate government debt of similar maturity, fell five basis points to 260. That implies an average annual inflation rate of 2.6 percent.
Israeli markets shut at 2:30 p.m. in Tel Aviv today, two hours early, and will be closed on March 31 and April 1 to mark the Passover holiday.
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