Current account surplus improves + institutions sell some FX in January

ISRAEL - In Brief 12 Mar 2024 by Jonathan Katz

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Yesterday's shekel depreciation (1.1% against the basket) occurred despite the increases in overseas markets and positive news regarding an increase in the current account surplus in the fourth quarter, to $10.5 billion, compared with $4.7 billion in the third quarter. The goods and services account (which more accurately reflects the underlying pressure on the shekel) jumped to $6.4 billion from $4.5 billion in the third quarter (exports declined less than imports). However, part of the decline in imports is temporary due to the impact of the war. In contrast to the improvement in the current account, there was a significant deterioration in financial capital flows, which indicated a net outflow of $14.5 billion in Q423 ($13.3 billion of that in tradable securities, both by Israelis and foreigners). Underlying factors (CA surplus mostly) continue to support the shekel, but geopolitical uncertainty and perhaps the expectation of further downgrades (by Fitch and/or S&P) has impacted the shekel recently. In January, institutional investors sold $0.8 billion net (by selling assets abroad) and reduced their foreign exchange exposure to 22.1% from 22.2% in January (and 19.9% in September 23). In the fourth quarter, institutional investors were net purchasers of $15.6 billion. Following this sharp increase in the rate of exposure to foreign currency in Q4, the potential for further increase could be limited (without further deterioration in the security situation in our region).