Moody's warns against investing in Israel following the passing of Reasonableness Standard Bill on Monday

One day after the Reasonableness Standard Bill was passed in the Knesset, Moody’s credit rating agency published an unscheduled report for investors warning against investing in Israel.

"We anticipate negative consequences for Israel's economy and security,” read the report.

In April, Moody's lowered Israel's credit rating outlook from "positive" to "stable, while confirming the A1 long-term issuer ratings in foreign currency and local currency.  

The investment bank Morgan Stanley simultaneously published a response to Israel's situation in which it stated there is "uncertainty about the state of the economy in the coming months."

The bank now ranks Israel as in a "dislike stance."

“We see increased uncertainty about the economic outlook in the coming months and risks becoming skewed to our adverse scenario," according to a research analyst’s note at Morgan Stanley.

Citibank also published a message to investors regarding Israel’s current political situation, saying the crisis could lead to a shake-up in the markets if the High Court intervenes in the legislation or if the attorney general were to be dismissed.

"The situation is getting more dangerous and more complicated," the note read.

Israeli Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich issued a joint statement in response to Moody’s announcement saying: "This is a momentary response. When the dust clears, it will be clear that the Israeli economy is very strong."

"The security industries are bursting with orders. The gas industry is increasing exports to Europe and seven companies are now competing for tenders to explore gas in Israel at an investment worth billions,” the statement continued.

“Intel is planning its largest investment outside of the US ever and will invest $25 billion in Israel. NVIDIA is building a supercomputer in Israel and we are moving forward in AI, cyber and the manufacture of chips in Israel,” according to the ministers’ statement.

“Growth is increasing and inflation has been blocked. The Israeli economy is based on strong fundamentals and will continue to grow under experienced leadership that is enacting a responsible economic policy," they confirmed.

At the moment, Israel's credit rating is one of the world's best, ranging from A to AA, ranking Israel among the top 20 countries globally for their ability to meet obligations and repay loans fully and on time.

A downgraded credit rating would mean an increase in interest rates on loans taken by the Israeli government and Israeli companies in global financial markets, which could potentially lead to significant – possibly sharp – increases in interest rates for private loan holders.

Just six months ago, Israel issued 10-year green bonds worth some $2 billion. The demand far exceeded the supply, totaling over $10 billion. The interest rate was very favorable at 4.5%.

Bonds were considered a success, mainly due to the sound economic policies implemented in Israel over the past two decades, particularly during Netanyahu's tenure as prime minister.

Consequently, the disappointment expressed by credit rating agencies is significant as they do not see how judicial reform in Israel will benefit the economy, despite the prime minister repeatedly assuring them that it will.

Notably, the Israeli shekel weakened significantly against major currencies like the U.S. dollar and the Euro soon after the Reasonableness Standard Bill passed the Knesset vote on Monday.