The Israeli shekel experienced a dramatic rollercoaster ride on Monday, as investors grappled with the potential long-term impact of rising political tension in the country. The shekel weakened for a third consecutive day, dropping 0.7% against the dollar, after initially surging more than 1%, only to plummet by as much as 1.5%.
The cause of this wild fluctuation lies in the political storm surrounding the approval of a contentious judicial overhaul bill by Israel’s parliament. The bill, which curtails the power of judges to overrule government decisions, has ignited massive demonstrations and drawn criticism from opposition parties. Despite the protests, the parliament ratified the bill, leading to significant market repercussions.
Financial markets in Israel took a hit in response to the bill’s passage. The Tel Aviv share indices slid, with the benchmark TA-125 index dropping 2.3% and the blue-chip TA-35 index falling 2.2%. The shekel also weakened, hitting a two-week low against the dollar at 3.68, its weakest level since July 12. Furthermore, government bond prices experienced a decline of up to 1.8%.
The controversy over the judicial overhaul has not been limited to financial markets. In response to the vote, some 150 of Israel’s largest companies participated in a strike, and major malls closed their doors in protest. The high-tech sector, which has been at the forefront of opposing the bill, also took part in the strike. Companies fear that the changes may undermine democracy, lead to reduced foreign investments, and trigger an outflow of funds from the country.
The impact of the situation on Israel’s credit rating is also a concern. International credit rating agencies, including Standard & Poor’s and Moody’s Investors Service, have been warning about a potential deterioration in Israel’s governance and institutional strength amid the political tensions. This has raised concerns about possible credit rating downgrades in the future.
As the situation continues to unfold, investors and businesses are keeping a close eye on developments, hoping for a resolution that can stabilize the shekel and restore investor confidence. However, with the uncertainty surrounding the political landscape, the future remains uncertain for Israel’s currency and financial markets.
By: Montel Kamau Serrari Financial Analyst 25th July, 2023
photo source :Google
