The shekel weakened on investor bets the Bank of Israel will follow yesterday’s purchase of U.S. dollars with more action to stem appreciation in the Israeli currency. Benchmark bonds rose.
The shekel declined 0.1 percent to 3.6279 a dollar at 1:13 p.m. in Tel Aviv after yesterday strengthening as much as 1.1 percent to 3.5898. It was the best performer in the past six months among a basket of 31 major currencies tracked by Bloomberg in the run-up to the country’s start of gas production. The yield on the 4.25 percent benchmark notes due March 2023 fell one basis point, or 0.01 percentage point, to 3.79 percent.
The Bank of Israel, which last intervened in July 2011, late yesterday confirmed in a statement on its website that it had “acted” in the currency market. Governor Stanley Fischer, who will step down at the end of June, is credited by some economists with helping the nation weather the world financial crisis by buying foreign currency to curb shekel strength and support exports.
“The central bank yesterday sent a message to the market that it is willing to intervene as it sees necessary as domestic events including the gas flow start fuel currency gains,” Tal Zohar Avda, the Tel Aviv-based chief executive officer of Forex Capital Markets LLC, said by telephone today. “We may see further action should the exchange rate go below the 3.60 level.”
The Bank of Israel said that it acted in accordance with a declared policy of operating in case of “irregular swings in the exchange rate that aren’t in line with fundamental economic conditions or when the foreign currency market isn’t operating properly.” Reserves, which stood at $77.3 billion at the end of February, more than doubled as a result of the purchases, which ended in July 2011.
Annual inflation, which was steady at 1.5 percent in February, may average 2.40 percent in the next year, according to the one-year break-even rate. The rate, which reflects the yield difference between inflation-linked bonds and fixed-rate government debt of similar maturity, rose two basis points to 240. The government’s target range is between 1 percent and 3 percent.
One-year interest-rate swaps, an indicator of investor expectations for rates over the period, advanced one basis point to 1.61 percent. The Bank of Israel at the end of last month left interest rates unchanged at 1.75 percent. The Tel-Bond 40 Index of corporate bonds dropped for a second day, declining 0.1 percent to 286.16.
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