The shekel is stable today against the dollar and strengthening against the euro. In late morning inter-bank trading, the shekel-dollar exchange rate is up 0.14% against the dollar at NIS 3.733/$ and down 0.22% against the euro at 4.201/€.
Yesterday, the Bank of Israel set the shekel-dollar representative rate down 0.027% at NIS 3.728/$ compared with Monday's rate and set the shekel-euro rate down 0.434% at 4.219/€.
In the immediate aftermath of Monday's surprise decision by the Bank of Israel Monetary Committee to raise December's interest rate by 0.15% to 0.25%, the shekel strengthened sharply against the dollar but it has already given up all those gains and more. This was the first time that the Bank of Israel has hiked the interest rate since June 2011 and the first rate change since it was cut to an historic low of 0.1% in March 2015.
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."
He added, "The shekel interest rate hike in a period when the US has indicated a slowdown in the pace of rate hikes, demonstrates the potential for a continued narrowing in the interest rate gap between the shekel and the dollar, a development that would contribute to the strengthening of the shekel and harm terms of trade for Israeli exporters."
Published by Globes, Israel business news - en.globes.co.il - on November 28, 2018
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