The shekel has weakened against the dollar and euro, after the Bank of Israel cut the interest rate cut for October yesterday. The shekel-dollar exchange rate has risen 0.36%, compared with yesterday's representative rate, to NIS 3.528/$, and the shekel-euro exchange rate has risen 0.34% to NIS 4.766/€.
Yesterday, the Bank of Israel cut the interest rate for October by 25 basis points to 1%, mainly out of a desire to stem the strengthening of the shekel against the dollar. It cited the low inflationary environment in the past year and in 12-month inflation expectations; indicators that, although economic activity continues to expand, exports and private consumption are slowing; and global economic forecasts, which point to a slowing of the recovery.
The Bank of Israel's Research Department also cut its growth forecast for 2013 to 3.6% from its previous forecast of 3.8%, mainly because of slower growth in consumption. Excluding the effect on GDP of natural gas production from the Tamar well, it expects growth of 2.6%. The Bank of Israel raised its growth forecast for 2014 to 3.4% from 3.2%. Excluding natural gas production, the growth rate is projected at 2.7%.
This morning, FXCM Israel advises waiting to see whether today's weakening of the shekel against the dollar is a short-term trend, or a harbinger of a turnaround. "The interest rate cut alone, as well as the Bank of Israel's intervention in trading, will not change the downward trend in the shekel-dollar exchange rate, which is mainly caused by global factors that are weighing on the dollar in international markets."
Published by Globes [online], Israel business news - www.globes-online.com - on September 24, 2013
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