The shekel has strengthened sharply this morning against the major currencies. The shekel-dollar exchange rate is down 0.54% compared with yesterday's representative rate, at NIS 3.4343/$, and the shekel-euro rate is down 0.45%, at NIS 4.6722/€.
Yesterday, the Bank of Israel Monetary Committee decided to keep the bank's interest rate at 0.75%. The decision was in line with market expectations. According to the forecast presented to the Monetary Committee by the Bank of Israel Research Department, Israel's rate of inflation over the coming year is expected to be 1.6%. The Research Department sees the Bank of Israel interest rate remaining at 0.75% to the end of 2014, and to start rising during 2015 to 1% in twelve months' time, and 1.5% by the end of 2015.
FXCM Israel says in its market review this morning, "The shekel-dollar rate has fallen almost 200 points in the past twenty-four hours, and is now below the NIS 3.44/$ level once more, after the Bank of Israel chose to leave its interest rate unchanged yesterday, despite the continuing trend of the appreciation of the shekel against the dollar and the euro in the past month, and the pressures on the exporting sector, which has been hit hard by the appreciation of the shekel.
"Even if its decision was correct," FXCM continues, "the Bank of Israel will have to deal with the danger latent in the appreciation of the shekel. The interest rate decision provides an additional incentive for speculators to push the shekel-dollar rate downwards, and this comes just a few days after the US Federal reserve declared its continued commitment to a zero interest rate policy for the foreseeable future. Even last night, we saw the shekel-dollar rate sink towards the May low of NIS 3.434/$. A fall below this level will expose the NIS 3.2/$ level, and that, it will be recalled, is the level at which Stanley Fischer chose to intervene massively in the foreign exchange market, and succeeded in reversing the trend."
Published by Globes [online], Israel business news - www.globes-online.com - on June 24, 2014
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