Teva Dividend Could Be Hurt by Bank of Israel’s Rate Cut

TEL AVIV (TheStreet) -- The recent decision from Bank of Israel to cut its basic cash rate to a historic low of 0.25% could also bring down the dividend payment to investors in leading Israeli companies such as Teva Pharmaceutical Industries (TEVA)   and Check Point Software Technologies (CHKP) .

Why? This decision may depreciate the Israeli currency, the New Israeli Shekel, against the U.S. dollar, which will translate to lower dividend payments.

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The latest rate cut is prompted by Bank of Israel's goal to jump-start the economy, especially considering the current adverse impact of the war between Israel and Hamas.

Moreover, inflation in the past year was only at 0.3%, well below BOI's target inflation. Low inflation also indicates low economic activity in Israel.

This decision was also made the support Israeli exports in an attempt to devalue the NIS against leading currencies, including the U.S. dollar and the euro.

Following this decision, the exchange rate between the U.S. dollar and the NIS rose by 0.8% to 3.57 -- its highest level this year. If BOI were to take additional steps to heat up the economy, as other leading central banks have taken over the years -- the U.S. Federal Reserve's FOMC and Bank of Japan implemented long term bond purchase programs, or quantitative easing, and the European Central Bank reduced its deposit rate to a negative level -- this could depreciate the NIS even further.

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