(Updates with late day recovery of shekel, BofA comment)
By Steven Scheer
JERUSALEM, Feb 22 (Reuters) - Israel's shekel was
largely unchanged against the dollar late on Wednesday,
recovering from further falls in the currency that some say
could spark central bank intervention, as investors fret over a
plan to overhaul the country's judiciary.
The shekel stood at 3.633 per U.S. currency at 1515 GMT,
after softening more than 1.5% at one stage to 3.69, its lowest
since March 2020 and after weakening 1.6% on Tuesday. One
strategist at an Israeli bank said the afternoon bounce-back
stemmed from exporters taking advantage of a higher dollar.
Since hitting a high of 3.34 on Jan. 25, the shekel has slid
nearly 10% on talk of local firms pulling bank accounts from
Israel and foreign investors staying away due to the
government's proposed judicial changes.
BofA Securities economist Zumrut Imamoglu said that while
political noise does not usually impact Israeli assets or
economic policy, "this time is different".
"If this sentiment continues, we expect further shekel
depreciation. The Bank of Israel could intervene in the currency
rather than increase its policy rate further, as it is close to
ending its hiking cycle, and hikes usually have little effect on
the currency when the underlying factor behind depreciation is
confidence," he wrote in a note to clients.
The government's reform plan would give it greater sway on
selecting judges, while limiting the Supreme Court's power to
strike down legislation. New bills that received preliminary
approval in parliament on Wednesday included one that would bar
the Supreme Court from intervening in ministerial appointments.
"The weakening shekel trend will most likely continue as
long as no reasonable compromise is reached," said Jonathan
Katz, chief economist at Leader Capital Markets, adding that
foreign exchange intervention was possible to "smooth out sharp
volatility", but was not a tool preferred by the Bank of Israel.
The central bank, which declined to comment on Wednesday,
has bought tens of billions of dollars over the past 15 years to
prevent the shekel from strengthening too quickly and its forex
reserves stand at $201 billion.
"If this (shekel depreciation) continues rapidly, we could
see the Bank of Israel hiking rates to 5% in the next rate
decision (April 3), and possibly earlier," Katz said.
With Israel's annual inflation rate at a more than 14-year
high of 5.4% in January, policymakers voted to raise the
benchmark interest rate by 50 basis points on Monday
to 4.25%, its eighth hike in a row. Yet, this was overshadowed
by the judicial plan passing its initial vote.
Following Monday's parliamentary vote, Citi said it was
going long dollar-shekel, targeting 3.95 to the dollar.
Critics say Prime Minister Benjamin Netanyahu - who is on
trial on graft charges that he denies - is seeking legal changes
that will hurt Israel's democratic checks and balances, enable
corruption and bring diplomatic isolation.
Proponents say the changes are needed to curb what they deem
an activist judiciary that interferes in politics.
Government bond prices fell as much as 0.7%, while the main
Tel Aviv-125 share index dipped 0.5%, with both bonds
and stocks also recovering from sharp early declines.
(Reporting by Steven Scheer; editing by John Stonestreet, Alex
Richardson, Sharon Singleton and Alexander Smith)
Messaging: steven.scheer.thomsonreuters.com@reuters.net;
Twitter: @StevenMScheer))
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