Shekel slumps after Netanyahu speech vowing to push ahead with overhaul legislation

Currency sees sharp swings over several hours as initial expectations that Defense Minister Gallant would call to halt reforms were dashed

Illustrative: 100 shekel banknotes, seen December 31, 2017. (Nati Shohat/Flash90)
Illustrative: 100 shekel banknotes, seen December 31, 2017. (Nati Shohat/Flash90)

The shekel slumped Thursday evening after Prime Minister Benjamin Netanyahu declared the government would move ahead in passing a key plank in its contentious judicial overhaul, erasing earlier gains that accompanied Defense Minister Yoav Gallant’s expected public call to halt the legislation.

The currency saw sharp swings over several hours as initial investor optimism soured after the prime minister’s speech.

Ahead of a planned press conference by Gallant, the shekel appreciated more than 2 percent against the US dollar and Israeli stock indices closed higher. The Tel Aviv Stock Exchange’s benchmark TA-125 index rose 2.1% and the TA-35 index of blue-chip companies added 1.8% at the close, according to TASE data.

The TA-Bank index, which tracks the five largest banks, jumped 3.6%.

The rises came as Hebrew media reports said Gallant had decided to call to stop the far-reaching changes to the judiciary, amid growing alarm in the military over the potential disintegration of the military’s reserve forces amid the changes to Israel’s balance of powers.

However, Gallant did not end up speaking, with his office announcing he was postponing his statement after being summoned by Netanyahu.

The premier then delivered his own televised address in which he vowed to press ahead with legislation that will politicize judicial appointments and which the coalition is expected to try to pass into law next week.

Netanyahu also attempted to assuage the opposition’s fears the legal shakeup will turn Israel into a dictatorship, insisting he would intervene in the legislation and ensure it is balanced and does not grant the coalition undue power.

After Netanyahu spoke, the shekel again dipped in value, with the exchange rate hitting NIS 3.62 per dollar. Stock markets had already closed for the weekend and will reopen Sunday morning.

Defense Minister Yoav Gallant (left), Prime Minister Benjamin Netanyahu and IDF Chief of Staff Herzi Halevi observe a joint US-Israeli military exercise at the Air Force command center, January 25, 2023. (Kobi Gideon/GPO)

The shekel has been weakening amid growing investor concern that the government is determined to press ahead with contested changes to weaken the judicial system, making it among the world’s worst-performing major currencies this year.

On Monday, senior Treasury officials warned Finance Minister Bezalel Smotrich that the overhaul could stunt Israel’s growth, resulting in a severe loss of tax revenue and do “very significant harm” to the economy.

The shekel hit 3.7 per dollar in intraday trading this week, its weakest level in four years, as Netanyahu’s coalition pushed ahead with legislation that would grant the government control over the appointment of judges, including High Court justices, and all but eliminate the High Court’s ability to review and strike down legislation.

Bank of Israel Governor Amir Yaron cautioned in an interview with CNN last week that the government’s sweeping overhaul was “hasty,” and said one of the reasons an orderly and broadly agreed-upon process was important was to stop companies from directing investments away from the Israeli market, which several major firms have already announced they will do.

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