The shekel is rebounding against the dollar and euro after weakening sharply over the past few days. In late afternoon inter-bank trading, the shekel exchange rate is down 0.70% against the dollar at NIS 3.146/$ and down 0.71% against the euro at NIS 3.523/€.
Earlier this afternoon, the Bank of Israel set the representative shekel-dollar rate up 1.865% from Monday, at NIS 3.168/$, and the representative shekel-euro rate was set 1.526% higher at NIS 3.552/€.
After swiftly appreciating over the past month, the shekel changed direction earlier this week following comments from the Bank of Israel about the country's relatively low inflation expectations, and the completion of its foreign currency buying plan. In addition, the time out on Wall Street from its continual climb over the past 18 months means that Israeli financial institutions no longer have to hedge their overseas investments by buying shekels.
The turning point for the shekel came on Monday when the Bank of Israel Monetary Committee announced that it is keeping the interest rate unchanged at its historic low of 0.1%. The unexpectedly low Consumer Price Index rise of 0.1% in October means that while central banks around the world have had to act to restrain inflation, the Bank of Israel can afford to wait.
The Bank of Israel in its interest rate announcement expressed confidence that higher inflation is a temporary phenomenon and did not comment on the dramatic strengthening of the shekel on the foreign exchange market over the past month and simply said, "The Bank continues to act taking into account the state of the economy and the continuation of economic activity."
Bank of Israel Governor Prof. Amir Yaron stressed that the bank is in no hurry to raise the interest rate because inflation is under control. He said that the bank has "more levels of freedom" after the annual inflation rate in October slowed from 2.5% to 2.3%.
Prof. Yaron also said that the Bank of Israel is not trying to change the trend of the shekel but allow the Israeli economy to adjust to the changes.
The Bank of Israel Monetary Committee said that it would, "Continue to conduct an accommodative monetary policy for a prolonged time, in accordance with the pace of growth, employment, and the path of inflation."
Earlier this week, the Central Bureau of Statistics reported that GDP growth on an annualized basis slowed to 2.4% in the third quarter of 2021. Overall growth in 2021 is expected to be above 6%, the Bank of Israel forecasts.
Relatively low annual inflation and unemployment stabilizing at 7% are factors that will allow the Bank of Israel to wait longer than expected before raising the interest rate, and probably at a late date than many other Western countries.
Published by Globes, Israel business news - en.globes.co.il - on November 24, 2021.
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