Tel Aviv Stocks Fall and Shekel Weakens on Faster Rate-Cut Signal

Israeli markets fell on Wednesday as the shekel weakened by more than 1 percent to about 2.86 per dollar, after the governor of the Bank of Israel indicated the central bank could cut interest rates more quickly than expected. The financial daily Globes reported that the insurance index dropped 5 percent and that declines on the Tel Aviv exchange deepened through the session.

The currency move followed comments raising the possibility of accelerated easing, which tends to reduce the relative return on holding a currency. Globes also cited a cautious growth outlook, noting a forecast of 3.3 percent expansion for Israel this year. The Bank of Israel had already lowered its benchmark rate to 3.75 percent in May, its second cut of the year, supported by a previously strong shekel and contained inflation.

The reversal in the currency is notable because the shekel had appreciated substantially in earlier months, gaining more than 8 percent against the dollar between recent policy decisions. A signal of faster cuts, set against an active regional war, has now reversed that gain.

The episode shows how quickly currency strength can reverse when the expected path of interest rates shifts. For an economy operating under wartime conditions, the interplay between monetary easing, growth concerns and security risk leaves the currency sensitive to each new signal from the central bank.