Goldman S&P Resculants Cut Forecast on Netanyahu’s Court Policy

Bloomberg strategists at Goldman Sachs Group Inc. have revised their forecasts to reflect a weaker shekel on renewed concerns that Prime Minister Benjamin Netanyahu's judicial policy will increase pressure on the currency and the central bank won t intervene to support it.

comments by Central Bank Deputy Governor Andrew Abir last week that interest rates need to be the main tightening tool have downplayed the potential for FX intervention, the strategists said in a report on Friday. The shekel fell 2.3% last week after parliament passed a new national budget, which gave more money to the nation s ultra-Orthodox to secure the bloc s loyalty to his right-wing coalition.

In the next three months and 12 months, Goldman revised its forecasts of the shekel to 3.70 and 3.60 against the dollar, compared with 3.50 and 3.40 previously. While that s still stronger than the current level, the strategists said they expect volatility around their estimates to remain elevated. The shekel rose 0.3% to 3.7178 from 3.7178 in the morning at 2:50 p.m. in Jerusalem.

With limited policy support, we think domestic political developments will stay in the driver s seat for the shekel, Goldman's strategists, including Kamakshya Trivedi, said in a statement.

The shekel's correlation with the performance of global technology stocks began to weaken in January, as protests against Netanyahu's plans to give politicians more power over the judiciary and its appointments. His decision in late March to delay the plan had provided some reprieve for the currency until last week.

The shekel trades at a more than 10% discount to Goldman's expected fair value of around 3.3 per dollar, the strategists said.

In April, Moody's Investors Service lowered the outlook on Israel's A 1 rating to stable from positive, pointing to a deterioration in Israel's governance. If market participants and tech investors continue to grow more concerned about domestic political developments and their impact on institutional quality, risk premium may grow further in the currency, Goldman strategists said.

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