Shekel gains against dollar ahead of Oct CPI

Shekel Photo: Shutterstock
Shekel Photo: Shutterstock

With falling world oil prices, it is unclear whether annual inflation in Israel in 2018 will remain within the government's 1%-3% target range.

The shekel is strengthening today against the dollar and weakening against the euro. In late morning inter-bank trading, the shekel-dollar exchange rate is down 0.37% against the dollar at NIS 3.684/$ and up 0.26% against the euro at 4.180/€.

Yesterday, the Bank of Israel set the shekel-dollar representative rate up 0.244% at NIS 3.698/$ from Tuesday's rate and set the shekel-euro rate down up 0.455% at 4.169/€.

The shekel's movement today is reflecting international trends with the dollar weaker and euro stronger on world forex markets. International markets have reacted hesitantly to the soft Brexit agreement hammered out between the EU and UK, as it remains unclear whether British Prime Minister Theresa May will be able to push the deal through parliament, and move ahead with the planned signing on November 25.

In Israel, the Central Bureau of Statistics will announce this evening the Consumer Price Index (CPI) for October, with analysts predicting a rise of 0.2%. This would mean that inflation is running at 1.2% over the past 12 months, in the lower end of the government's target range of 1%-3% for annual inflation. Remaining in the range is a prerequisite for the Bank of Israel raising the interest rate above its historic low of 0.1%, where it has been rooted since March 2015.

However, with oil prices falling sharply on world markets, the November and December CPIs are expected to be negative, and it is conceivable that inflation for 2018 will fall below 1% and out of the range. It is unlikely that the Bank of Israel will raise the interest rate at its next meeting on November 26, before Prof. Amir Yaron takes up the post of Governor, and the inflation outlook calls into question whether the Bank of Israel will realize its own forecast of raising interest rates in the first quarter of 2019. In any event, the US Fed has reiterated its commitment to raise interest rates next month, widening the interest rate gap between the US and Israel and thus weakening the shekel in the short term.

The shekel fell yesterday after the resignation of Defense Minister Avigdor Liberman but the trend has not continued today. With elections due in Israel in 2019 anyway, Liberman's resignation and the coalition chaos is not as disruptive as it might otherwise have been.

Published by Globes, Israel business news - en.globes.co.il - on November 15, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

Shekel Photo: Shutterstock
Shekel Photo: Shutterstock
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