The shekel is mixed against the major currencies this morning, with the Bank of Israel's interest rate decision for May due later today. The shekel-dollar exchange rate is currently down 0.88% in comparison with Friday's representative rate, at NIS 3.9164/$, and the shekel-euro rate is up 0.14%, at NIS 4.2550/€.
The foreign exchange market is tensely awaiting the announcement of the Bank of Israel's interest rate decision at 16:00 today. Some analysts see at least a 50% chance that the central bank will cut its rate to zero, in order to weaken the shekel.
Expectations on the capital market to a large extent reflect forecasts by three overseas banks that are major players in foreign exchange: RBS, HSBC, and Bank of America Merrill Lynch all see a further interest rate cut in the next three months, and a high probability of some kind of quantitative easing program.
At the same time, seventeen out of twenty macro analysts surveyed by Bloomberg estimate that the Bank of Israel will leave its interest rate unchanged today.
FXCM Israel says in its market review this morning, "The Bank of Israel will publish its interest rate decision for May today, and this could certainly raise volatility in the shekel-dollar rate. Last month, the decision not to cut the interest rate caused a great upheaval in trading in the shekel, and in fact halted the trend of depreciation in the currency. Since the beginning of April, the shekel has appreciated by 2% against the US dollar, at a time when on world markets the dollar index weakened by just 1.5%. Since the peak of NIS 4.069/$ in early March, the shekel has strengthened by 4.1% against the dollar.
"Since depreciation of the shekel is one of the Bank of Israel's main goals, the current trend of appreciation could be one factor that will push the bank into activating dramatic steps, or at least into raising the pitch of its rhetoric on expansionary measures. Even so, the assessment is that the Bank of Israel will defer its decision by at least one month and will leave its interest rate unchanged today, at 0.1%, among other things because the latest CPI reading showed a rise of 0.3%, and against the background of the Research Department's estimate that inflation will return to positive territory in 2016."
Published by Globes [online], Israel business news - www.globes-online.com - on April 27, 2015
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