A graph of the number of interviews given over the last two weeks by the governor of the Bank of Israel, David Klein, would somewhat resemble the graph of the dollar's sharp rise against the shekel following Klein's announcement of a two percent interest rate cut. Ever since, hardly a day has gone by without Klein making his voice heard, be it on television or radio, in the press or at various conventions.
In each interview, Klein repeats the same messages: One, we won't intervene in the foreign currency market. Two, the government must complete the budget cuts that it undertook to carry out. Three, the Bank of Israel will adjust interest rates according to developments.
One can, of course, only be thankful that Klein is attentive to the markets and understands the hankering for his pronouncements on future policy. After the surprising interest rate cut, Klein's reputation as someone who does not do deals was somewhat tainted, and perhaps because of this, Klein feels he has to do something to restore his credibility.
But his intense media presence may also be a sign that the central bank governor is feeling the pressure in light of the situation in the financial markets. Klein is aware of the criticism in the business sector of his decision to choose a sharp, one-time interest rate cut over a gradual reduction in rates, and he is now trapped between his wish to prove that the rate cut was justified and the necessity of preventing volatility on the financial markets.
The foreign currency markets have of course grabbed most of the headlines. Since the rate cut, the shekel has been devalued by around five percent against the dollar. Businesses need stability, and currency fluctuations do not provide it. Now it looks like Klein himself is taking steps to help them out. He may not be downloading dollars onto the market, but his media efforts certainly constitute a sort of active intervention.
Klein's declarations that he will not intervene have helped stabilize the markets. On Monday, it looked like the dollar was racing toward NIS 4.60, but Klein's comments helped slow things down. Yesterday, the dollar continued to slip back against the shekel, an apparent aftereffect of Klein's interview with Army Radio earlier in the morning, in which he once again repeated that he would not intervene in currency trading.
Klein's publicity campaign also has another goal: Klein wants to remind the prime and finance ministers that they agreed to a deal. I've already kept my end of the bargain, Klein is saying, but you have yet to come up with the goods.
The message is: I've done my bit; the volatility on the markets is your responsibility - and if you don't get a move on, I'll move in the other direction.
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