2023-10-12 16:02:30
Since Monday, October 9, the Israeli Central Bank intervenes massively to support the shekel. This operation is exceptional. It is part of the general mobilization of reservists decided by the government to combat Hamas.
First modification: 10/12/2023 – 16:02
3 min
By Dominique Baillard
The Israeli Central Bank is pulling out all the stops: a $30 billion buyback program. In addition, it has 15 billion dollars to guarantee the liquidity of the stock markets. These are considerable sums, representing almost a quarter of its reserves.
Since January, the controversial justice reform has spooked investors, and the shekel has lost more than 10% of its value against the greenback. Until now, this had not provoked any defensive reaction from the Central Bank. But on Monday, the lights turned red, and the shekel fell to its lowest level against the dollar in eight years.
Effective performance
In general, the actions of the Israeli Central Bank are effective. To be able to act as it pleases, it has accumulated a comfortable cushion of reserves, amounting to 200 billion dollars. A well-known cushion whose mere existence deters speculators tempted from attacking the shekel.
The Bank of Israel’s guiding principle today is, of course, to support the currency, because a weak currency fuels inflation. And then, if necessary, give the State the means to finance its war, in case the conflict is prolonged.
Economist Jacques Bendelac explains that borrowing on foreign markets has become too expensive for the Israeli state today, which is why the Government is interested in issuing bonds through the Central Bank to finance its war effort.
Nearly 7 billion dollars
According to a first estimate, the war will cost close to 7 billion dollars. It is the figure given by the Israeli bank Hapoalim, calculated on the basis of the balances of previous wars waged by the Jewish State. This figure will vary depending on the duration of hostilities.
Private consumption and tourism in particular will suffer the consequences of the war, but it is above all the mobilization of 300,000 reservists that will take its toll, depriving companies of a large part of their employees. The public deficit will increase and growth will slow down “at the worst possible time for the Israeli economy”, according to Jacques Bendelac, already weakened by the fall of the shekel.
On Monday, the government ordered the closure of the gas extraction platform off the coast of Gaza for security reasons. Another negative sign. Chevron, which exploits the field, could review its investments if peace in the region is not guaranteed in the future.
Effect of the siege of Gaza on its economy
In addition to water and electricity cuts and damage caused by shelling, the siege has deprived the 20,000 Gazans who earned a daily living in Israel of their income. The work visas granted since Benjamin Netanyahu came to power were a bid to preserve peace.
These workers are paid in shekels, the Israeli currency most used in the territories, ahead of the dollar and the Egyptian pound. A humiliation for the Palestinians, deprived of their monetary sovereignty. An essential tool, but also a brake, because its role in the development of the local economy is practically non-existent. For 15 years, Israeli authorities have strictly limited the flow of money to Palestinian banks, fearing that these shekels could be used to finance Hamas’s activities.
Finally, the siege will have an immediate impact on transfers from Qatar. The thirty million dollars that the Gulf monarchy sends each month to support the administration of the Gaza Strip are transported in suitcases that must necessarily pass through the Jewish State.
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