The shekel is strengthening this morning in inter-bank trading against the dollar and against the euro after the Bank of Israel Monetary Committee, headed by Governor Karnit Flug, left the interest rate for August unchanged at an historic low of 0.1%. The exchange rate fell more than 1% against the dollar and euro but by late morning the shekel's appreciation had moderated somewhat. The shekel-dollar rate is down 0.66% to NIS 3.781/$ and the shekel-euro rate is down 0.71% to NIS 4.185/€.
Yesterday, the Bank of Israel set the shekel dollar representative rate down 0.497% from Friday's rate at NIS 3.806/$, and the representative shekel-euro rate was set 0.816% up, at NIS 4.215/€.
Energy Finance Financial Risk Management CEO Yossi Frank told "Globes" this morning, "Yesterday's interest rate decision did not surprise anybody operating in the market but what has been happening in the foreign exchange market at the moment, and in particular after the meeting has been a surprise and sends an especially threatening message to the Bank of Israel. Since the unfortunate press conference, foreign currencies have not managed to recover against the shekel and new high-points were reached last night."
He added, "In the eyes of the market, the Bank of Israel is seen as weak, and having no more tools to cope, it has raised its hands, otherwise there is no explanation as to how the currencies could have lost one full percentage within hours. Even if it is true, the Bank of Israel has made a big mistake by allowing players to do whatever comes into their heads without responding. What happened yesterday can best be defined as a market failure and can only attract more foreign and Israeli speculators gambling on the shekel and that contributes nothing to the economy."
FXCM Israel research department said this morning, "The main trigger for the downward fall was the collapse of the dollar overseas as well as the Bank of Israel's decision, which left no incentive to buy dollars. At the moment there seems no prospect of dramatic measures by the Bank of Israel such as negative interest rates or quantitative easement, which have not been mentioned for some time."
Published by Globes [online], Israel business news - www.globes-online.com - on July 28, 2015
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