Shekel strengthens sharply after BoI rate call

shekels

Governor of the Bank of Israel Karnit Flug: The current exchange rate is appreciated to some extent.

The shekel has strengthened sharply on the foreign exchange market following the announcement by the Bank of Israel that its interest rate for July will remain at 0.1%, and the remarks by Governor of the Bank of Israel Karnit Fug in a press conference following the announcement. The press conference was the first to be held by the Bank of Israel after an interest rate decision.

The shekel-dollar rate is currently down 1.35% in comparison with today's representative rate, at NIS 3.7814/$, and the shekel-euro rate is down 1.03%, at NIS 4.3055/€.

In the interest announcement, the Bank of Israel surprised market players with its projection for the interest rate, which implied a steeper rate of rise than had been expected. According to the central bank's Research Department, "the Bank of Israel interest rate is expected to remain at 0.1 percent throughout 2015 and to begin to increase at a moderate rate in 2016, among other reasons in light of the expected US federal funds rate increase. At the end of 2016, the interest rate is expected to be 1.25 percent."

In the press conference, Flug said, "I will note that based on various assessments, the current exchange rate is appreciated to some extent vis-à-vis estimates of the equilibrium exchange rate." She also referred to "a worrying virtual standstill in exports, which declined by 1.9%, and in investments, which declined by 8.1%" in the first quarter.

Energy Finance Financial Risk Management CEO Yossi Frank said in response to this afternoon's events, "The Bank of Israel exposed its vulnerability, and the speculators are punishing it mercilessly. For all the respect I have for the bank's professionals, I find it hard to understand what they want. They're concerned about the exchange rate, they're concerned about the state of exports, they have an infinite arsenal of weapons, and they decide to add the most dangerous of weapons, in the form of the press conference after the interest rate decision. This is a lethal weapon that should be deployed with the utmost care, because the markets react to it wildly. The writing was on the wall: uncompromising speculative activity in the past few months, and the Bank of Israel decided to do nothing, not to use any weapon, and to be completely anemic. The market punishes such naive action swiftly and harshly. It's just a pity that the one punished here is the Israeli economy."

Published by Globes [online], Israel business news - www.globes-online.com - on June 22, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

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