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 0.67% against the dollar at NIS 3.708/$ and up 0.15% against the euro at 4.2195/€.
Yesterday, the Bank of Israel set the shekel-dollar representative rate up 0.134% at NIS 3.733/$ from Tuesday's rate and set the shekel-euro rate down 0.140% at 4.213/€.
The interest rate gap between the shekel and the dollar would appear to be closing. Earlier this week the Bank of Israel Monetary Committee raised Israel's key rate from its historic low of 0.1%, where it has been anchored since March 2015, to 0.25%, its first rate hike since June 2011.
Meanwhile in the US where the key rate is 2%-2.25%, the US Federal Reserve is signaling a slowdown in its planned rate hikes following fierce criticism by President Donald Trump. Last night Fed Chairman Jerome Powell described the current US rate level as "just below neutral" strongly suggesting that he may have abandoned plans for three more rate hikes between now and the end of 2019.
In Israel, analysts do not expect an additional rate hike until well into 2019. Prico Risk Management and Investments CEO Yossi Fraiman said, "We believe that the Bank of Israel's raising of interest will be very cautious due to the sharp fall in energy prices, which will moderate the rate of inflation. The December CPI will be low and even negative and the rate of annual inflation will reach the lower range of the price stability target set by the government, which will signal a wait until the next rate hikes. Fraiman continued, "In the last quarter of the year many companies tend to transfer their foreign currency income back to Israel, which in the past has contributed to an appreciation of the shekel. With the slowdown in activities recorded in the third quarter, and the sharp rise in imports of goods in the first half of the year and a limited supply of foreign currency in the past two months, in our opinion the Bank of Israel will prefer to test the level of activities in the services sector before additional interest rate hikes, so it would be very surprising to see additional rate hikes in the first quarter of 2019 given the current situation."
Published by Globes, Israel business news - en.globes.co.il - on November 29, 2018
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