Following the vote, Citi said it was going long U.S. dollar- shekel, 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." 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%, drawing criticism from Foreign Minister Eli Cohen who urged a process to halt further hikes. Netanyahu put out a tweet defending the central bank's independence and declaring: "Nothing will change it." Cohen also drew a rebuke from Finance Minister Bezalel 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.
Smotrich hailed the judicial overhaul by Prime Minister Benjamin Netanyahu's 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, but Smotrich downplayed these concerns.
"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 as some of the crowd booed, while also blaming the media.
Smotrich said the reforms would boost business by cutting back unnecessary litigation.
Critics say Netanyahu - who is on trial on graft charges that 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. ( Editing by Himani Sarkar, Ed Osmond and Jan Harvey)
