Expectations of a 25-50 basis point interest rate by Governor of the Bank of Israel Prof. Stanley Fischer next week, combined with expectations of a breakthrough in peace talks with Syria, have pushed the shekel-dollar exchange rate to an 11-year low.
In inter-bank trading this morning, the shekel-dollar exchange rate fell 1.3% from yesterday's representative rate to NIS 3.312/$, and the shekel-euro exchange rate fell 0.9% to NIS 5.295/€. By mid-afternoon, the shekel-dollar exchange rate was up to NIS 3.336/$ and the shekel-euro exchange rate was up to NIS 5.297/€.
The shekel-dollar exchange rate fell 1.5% in the past two days, and is down 4.3% since April 27. Daily trading volumes range from $3.9 billion to $5.1 billion, of which $1.7-1.9 billion a day has been in swap trades. The Bank of Israel is continuing to buy $25 million worth of dollars a day on the market as part of its plan to boost its foreign currency reserves.
Fischer will announce the June interest rate on Monday evening. The decision will be affected by the spurt in inflation since the beginning of the year and rising inflation expectations for the year. Economists are advising the Bank of Israel not to raise the interest rate by more than 25 basis points this month, and to defer a steeper interest rate hike by a few months. They predict that inflation will ease during summer, and they fear that too great an interest hike now will cause foreign currency market chaos.
Published by Globes [online], Israel business news - www.globes-online.com - on May 22, 2008
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