New Delhi

The Israeli shekel plummeted to its lowest point in almost eight years against the U.S. dollar on Monday, driven by escalating conflict in the Middle East. 

Advertisment

Hamas militants launched an attack, resulting in the death of 700 Israelis and the abduction of dozens. In retaliation, Israeli airstrikes targeted housing blocks, tunnels, a mosque, and Hamas officials' homes in Gaza. These events have significantly impacted the Israeli shekel's value, with a decrease of over 3 per cent against the dollar, reaching a rate of 3.9581, Reuters reported. 

A Times of India report said that The Bank of Israel has made its first-ever foreign exchange sale, intending to sell up to $30 billion of foreign currency in the open market. The move aims to maintain financial stability amid the ongoing conflict with Palestinian militants in Gaza. 

The shekel has already weakened by 10 per cent in 2023 due to political instability, and with the anticipated duration of the conflict with Hamas in Gaza, further depreciation is expected. 

Advertisment

Media reports quote Golan Benita, head of the Bank of Israel's markets department, as saying that the central bank aims to reduce market volatility and potential overreactions, ensuring regular market activity. Additionally, the bank also intends to provide liquidity through swap mechanisms in the market, with a commitment of up to $15 billion. 

Israeli stock and bond markets faced a 7 per cent decline, but key Tel Aviv share indices rebounded by 1 per cent in afternoon trading on Monday, and government bond prices displayed mixed trends. 

Israel has amassed substantial forex reserves, exceeding $200 billion, which is about 40 per cent of its GDP. These reserves were built up over the years to prevent the shekel from appreciating too sharply, particularly affecting exporters in the tech sector. 

Advertisment

While the shekel is expected to remain weak in the medium term, Citi economists do not anticipate sustained periods of shekel weakness. Israel's robust position in emerging markets, with substantial reserves, allows it to meet various metrics comfortably. 

In a sign of market confidence, Israel successfully sold 2 billion shekels ($508 million) of bonds locally on Monday, even amid these challenging times. 

(With inputs from Reuters) 

WATCH WION LIVE HERE