The Central Bank of Israel props up the shekel after the fall | ET REALITY

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The Bank of Israel said on Tuesday that it had spent 7.3 billion dollars to support the shekel, which had fallen to its lowest level in eight years after the Hamas attack on October 7. The currency has now returned to roughly where it was before the invasion, and on Tuesday was trading at around 3.87 shekels to the dollar.

As Israel’s economy reels from an intensifying military campaign against Hamas, the country’s central bank has been working behind the scenes to provide financial stability where it can, including setting aside $30 billion to shore up the currency.

Still, the prospect of a prolonged military operation looms over a troubled economy that had been booming. Last week, the central bank cut its growth forecasts and warned of the negative impact of the war on the Israeli economy and financial markets. The bank said growth would cool to an annual rate of 2.3 percent this year and 2.8 percent in 2024, from an expected growth pace of 3 percent for both years forecast in August – if the war is limited to Gaza.

About 300 prominent Israeli economists called on Prime Minister Benjamin Netanyahu to protect the economy from an impending recession, which they said would cost tens of billions of shekels. “The magnitude of the crisis facing Israel’s economy is not understood,” they wrote in a joint letter last week.

The group urged “a massive diversion” of money from a program approved in the summer for the ultra-Orthodox community, arguing that the funds should be spent on rebuilding “the damage caused by the war,” providing aid to victims and rehabilitating the economy. .

Two credit rating agencies have warned that Israel’s debt could be degraded, depending on the severity and duration of the conflict. A downgrade would increase interest costs for Israel’s government when it borrows money.

Israel’s Finance Ministry last week approved a war compensation package to help support people and businesses, including housing for evacuees from combat zones. The government will also offer state-backed grants and loans to small and medium-sized businesses, and is creating a fund to help businesses cover fixed expenses, including employee salaries. The plan is pending approval by the Knesset.

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