"The probability of a sharp rise in the exchange rate - which in the past was a risk factor that supported inflation - is low at this stage," states the Bank of Israel in its Inflation Report for the Second quarter of 2009, published today.
The Bank of Israel states, "Price rises in the third quarter will probably be fairly higher, due to the hike in indirect taxes and the price of water. However, we believe that, for now, the risk of inflation over the coming year is limited, since a number of factors are mitigating against higher prices: domestic demand is still much lower than production capacity, there is a substantial global production capacity surplus, and the low interest rate."
The Bank of Israel also explicitly states for the first time that its dollar purchasing program was intended, in part, "to support the exchange rate". When the central bank originally launched the program, the declared goal was to boost Israel's foreign currency reserves to $40 billion; they are now more than 25% above that target, at over $50 billion. Today's announcement includes a broad hint that the program is drawing to a close: "The surplus in the current accounts is expected to create pressures for an effective appreciation in the shekel exchange rate."
Published by Globes [online], Israel business news - www.globes-online.com - on August 2, 2009
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