The shekel strengthened today for the second successive day against the dollar and the euro despite heightened regional tensions and Iran threatening to wipe out Tel Aviv and Haifa. On the foreign exchange market today, the Bank of Israel set the representative shekel-dollar rate down 0.058% at NIS 3.465/$, and the representative shekel-euro rate was set down 0.529% at NIS 3.856/€.
The Bank of Israel Monetary Committee is scheduled to announce the interest rate tomorrow. Most assessments predict that Governor of the Bank of Israel Prof. Amir Yaron and the Monetary Committee will leave the interest rate unchanged at 0.25%.
When the Bank of Israel made its most recent interest rate decision, it began purchasing foreign currency to weaken the shekel . The Bank of Israel announced yesterday that its foreign currency purchases totaled $2.26 billion in December.
Harel Insurance and Finance economic and research department head Ofer Klein writes, "Even though inflation has moved substantially away from its target, we believe that the Bank of Israel will leave the interest rate unchanged, while continuing to signal that the next change in it will be downwards. We believe that the Bank of Israel will continue purchasing foreign currency, and if it becomes really necessary, will lower the interest rate in the first half of 2020."
Meitav Dash's economists also predict that the interest rate will not be changed. "The Bank of Israel is expected to leave the interest rate unchanged in its decision this week, even though the most recent Consumer Price Index was again below the forecast, and the inflation rate fell to 0.3%. Growth figures are positive, and the improvement in the global mood will support a decision to leave the interest rate unchanged," they write.
Commenting on the Bank of Israel's foreign currency purchases, Bank Hapoalim's economists write, "The Bank of Israel is expected to continue focusing on foreign currency purchases, and in our opinion, the security tension makes it less likely that the interest rate will be cut in the coming months. The foreign currency market is already taking into account one interest rate cut in mid-year, a scenario that appears likely, assuming that the shekel appreciation pressure will intensify following the addition of Israel to the World Government Bond Index (WGBI)."
The Bank of Israel's interest rate protocol from its last meeting revealed a change among the Monetary Committee members in the meeting at which it was decided to leave the interest rate unchanged, and to resume intervention in the foreign currency market. In discussions that preceded the previous interest rate decisions, two committee members supported cutting the interest rate. In the most recent meeting, at which the Bank of Israel decided to leave the interest rate unchanged, contrary to the interest rate cut expected by the market, only one Monetary Committee member supported cutting the interest rate.
Together with the Bank of Israel's recent decision to resume substantial intervention in the foreign currency market, Bank of Israel market operations department manager Andrew Abir told "Globes" in December that the Bank of Israel would not stop at absorbing all of the supply created as a result of Israel's accession to the WGBI. Today's report of the Bank of Israel's foreign currency reserves shows that the Bank of Israel's foreign currency purchases totaled $3.56 billion in the past three months, mostly in November and December.
Published by Globes, Israel business news - en.globes.co.il - on January 8, 2020
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