Israel’s shekel falls as judicial showdown looms

Maayan Lubell

Reuters  /  September 7, 2023

JERUSALEM – Israel’s shekel dropped to its lowest level in more than three years on Thursday amid concerns that a judicial crisis besetting the country was deepening, with compromise efforts stalled and a key Supreme Court hearing days away.

Reaching 3.84 against a strengthening dollar, the shekel was at its lowest since March 2020, when it slumped relatively briefly at the start of the coronavirus pandemic in Israel.

At the September 12 Supreme Court hearing, the entire 15-judge bench will hear an appeal for the first time in Israeli history, against a judicial amendment that curbs some of its own powers, passed by Prime Minister Benjamin Netanyahu’s coalition in July.

There had been hope this week that President Isaac Herzog may forge a compromise between Netanyahu and his political rivals over the premier’s contested plan, but his efforts appear to have failed.

“With a lack of agreements and the court hearing approaching during a month of legal proceedings, the markets are concerned about a constitutional crisis,” said Chief Markets Economist at United Mizrahi Tefahot Bank, Ronen Menachem.

Netanyahu, who says the changes are meant to balance a Supreme Court that has become too interventionist, has been hazy when asked whether he would abide by a ruling that would quash the new law.

His nationalist-religious coalition in January launched its campaign to overhaul the justice system, sparking unprecedented protests and sending the shekel down around 10% as Western allies voiced concern for the health of Israel’s democracy.

“Over the past year the shekel was one of the weakest currencies among the comparison currencies, while only the Russian rouble and the Turkish lira demonstrated weaker performances,” Bank Leumi said in its weekly report.

Affected by the political developments, the shekel’s short-term performance will be difficult to predict, Leumi said.

Should a judicial compromise be reached it could go up, said Menachem. The Bank of Israel has cautioned that further weakening could push up inflation and warrant more rate hikes.

A source in Netanyahu’s coalition said that if compromises are not reached, the government “within days or weeks” might still present a scaled back version of the original plan.

Additional reporting by Steve Scheer in Tel Aviv; editing by Ari Rabinovitch and John Stonestreet


Israel central-bank chief, PM Netanyahu to decide on second governor term in October

Steven Scheer

Reuters  /  September 10, 2023

JERUSALEM – Bank of Israel Governor Amir Yaron met with Prime Minister Benjamin Netanyahu on Sunday and discussed whether Yaron would consider a second term, the central bank said, with both sides agreeing to decide after the Jewish high holidays next month.

Yaron, whose five-year term ends in December, also urged the prime minister to seek a broad public consensus of the government’s plan to overhaul Israel’s judiciary, to preserve the country’s strong economy.

The high holiday season this year is September 16 to October 7.

The central bank declined to comment when asked whether Netanyahu had asked Yaron to stay for a second term. Netanyahu’s office also did not comment.

Yaron, an Israeli-born U.S. finance professor, who was nominated by Netanyahu in 2018, has been critical of the economic impact of a plan by Netanyahu’s government to limit the powers of the Supreme Court.

The issue of whether Yaron will seek, or be reappointed for a second term, has loomed over financial markets for months.

“Whoever is the governor has to continue to be independent and to express the professional opinion in matters concerning the Israeli economy,” Yaron said in an interview with Reuters last week. “And that such a position provides confidence to the markets.”

Yaron said the last five years have been “one of the most challenging” for any Israeli central banker, citing five election cycles, the COVID-19 pandemic, the Ukraine-Russia war, inflation and the government’s plan to overhaul the judiciary that has sparked mass protests and polarized the Israeli public.

Israeli media have also reported that Netanyahu has already reached out to a number of U.S. academics to succeed Yaron.

Policymakers last week held the benchmark interest rate at 4.75% for a second straight time after having raised 10 times from 0.1% since April 2022 to tame inflation. Yaron fought off criticism and potential legislation from lawmakers over steep rate increases that have boosted bank profits and harmed mortgage holders, while banks were slow to pass on higher rates to savings accounts.

Reporting by Steven Scheer; additional reporting by Maayan Lubell; editing by Hugh Lawson and Sharon Singleton