Strong Shekel Seen by Finance Minister as Problem for Fortunate

Ivan Levingston and Gwen Ackerman

(Bloomberg) -- For Israel’s finance minister, the shekel’s appreciation this year is more a compliment than a burden.

Moshe Kahlon is unfazed even as the country’s own central bank is struggling to get a handle on currency gains and sees them as a top impediment to its policy goals.

“These are the troubles of the rich, troubles of a strong state,” Kahlon said in an interview Monday in Tel Aviv.

One of the world’s top currencies this year has become a major policy headache for the central bank, which sees the appreciation as a drag on already-tepid inflation and has signaled it may intervene to weaken the shekel. But it’s been largely impervious to jawboning thanks to factors that range from foreign inflows in anticipation of Israel’s inclusion in a prominent bond index to the country’s potential for gas exports.

The shekel has gained about 6% against the dollar this year, the fourth-best performance globally. For a trade-reliant economy at risk of a slowdown, the worry is that the appreciation is making the nation’s goods more expensive abroad even as it benefits domestic buyers.

“There is no doubt that there are two ways to look at it,” Kahlon said. “The exporters will complain about it, and justifiably. But the consumers will be happy, because the cars will be cheaper, the trips abroad will be cheaper.”

Until recently, a hawkish stance by the central bank encouraged investors to look past any downside and bid up the shekel. But as the mood turned more dovish among policy makers worldwide, Bank of Israel Governor Amir Yaron backed off plans to increase borrowing costs in the coming months, saying in July that the country’s key interest rate won’t rise from 0.25% for a “long time.”

What’s more, indications are growing that the central bank -- which reviews rates next week -- won’t tolerate a strong shekel for much longer.

That risks a wider rift among Israel’s decision makers. The head of the National Economic Council, and Prime Minister Benjamin Netanyahu’s top economic adviser, Avi Simhon, said “a stronger shekel would be good for the economy in general,” by boosting employment and wages. The Bank of Israel “should smooth fluctuations, but not try to fend off long-run trends,” he said in an interview last week.

Even Kahlon concedes, however, that the ball is now in the central bank’s court. “I don’t know how much influence” the Finance Ministry “has on this,” he said.

To contact the reporters on this story: Ivan Levingston in Tel Aviv at;Gwen Ackerman in Jerusalem at

To contact the editors responsible for this story: Lin Noueihed at, Paul Abelsky, Dana El Baltaji

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