Shekel gains just 0.12% on dollar, despite NIS 2 bn. budget cut
The representative rate of the shekel against the U.S. dollar recorded a 0.12 percent strengtheneing of the Israeli currency, despite Thursday night's meeting between Prime Minister Ariel Sharon, Bank of Israel Governor David Klein and Finance Minister Silvan Shalom, during which it was decided to cut an additional NIS 2 billion from the budget.
The new representative rate has $1 trading at NIS 4.9540 - compared to NIS 4.96 on Thursday. Options trading is continuing Friday, and is likely to be affected by the announcement of the new Consumer Price Index, which is expected to show an increase of bewteen 1 percent and 1.5 percent.
In addition, the government will put forward legislation to block private members bills that require funding beyond what is available in the state budget - and will consider a new policy for child allotments, requiring income tests for eligibility for the handouts.
At a meeting in Sharon's Tel Aviv office Thursday night, meant to send a message to the financial markets that the economic leadership intends to stabilize the economy, Sharon reprimanded Shalom and Klein for their verbal dueling - and behind closed doors singled out Klein for publicly criticizing the government's recent legislation to cut NIS 13 billion.
The decisions made Thursday were meant to demonstrate that the government is in control of its budget and trying to avoid a large deficit. The three men hoped that today's markets will show much less volatility regarding the dollar-shekel exchange rate. Sharon and Shalom are hoping that Klein won't raise interest rates at the end of the month, and Klein reiterated it will depend on inflationary expectations.
But Klein has already lowered interest rates dramatically once before on the basis of a promise the government would cut spending, and if there is no budget cut by the end of the month, he may move ahead with another interest rate hike to follow the surprising 1.5 percent hike earlier this week.