Shekel resumes strong gains

Shekels  / Photo illustration: Shutterstock, Shutterstock.com

Forex traders say the aggressive interest rate hike in Poland has encouraged foreign funds to mistakenly think Israel may soon hike rates.

The shekel has resumed strengthening today and in late morning inter-bank trading, the rate against the dollar is 0.62% down from yesterday at NIS 3.119/$ and is currently down 0.86% against the euro at NIS 3.603/€.

There was a brief respite from the shekel rally yesterday as the Bank of Israel set the representative shekel-dollar rate up 0.256% from Tuesday, at NIS 3.138/$, and the representative shekel-euro rate was set 0.099% higher at NIS 3.634/€. The shekel is at a 25 year peak against the dollar and the strongest ever against the euro since it was introduced. The shekel has continued to strengthen this week despite reported foreign currency purchases by the Bank of Israel.

The rise in the shekel comes after the US Federal Reserve decided yesterday to keep the interest rate unchanged and reduce its bond buying stimulus program.

Some foreign currency traders say that the shekel resumed its strong gains yesterday after Poland decided to raise its interest rates more aggressively than expected from 0.5% to 1.25% rather than the anticipated 0.75%. The problem is that many foreign investors lump Israel together in the same group of countries as Poland, even though Poland is suffering from inflation and Israel is not. Traders say that foreign funds selling bonds in Israel are betting on an interest rate hike in Israel because countries like Poland are raising interest rates.

Yet it is abundantly clear to all those in Israel that comparisons between Israel and Poland are dangerous and disproportionate. Bank of Israel Governor Prof. Amir Yaron clarified this point in his most recent press conference. He said, "The comparison with countries like Poland are meaningless."

But in his recent criticism of the size of Israel's foreign currency reserves due to the Bank of Israel's attempts to moderate the strengthening of the shekel, State Comptroller Matanyahu Englman compared Israel's foreign currency reserves to those of Poland. Small wonder then that foreign funds do give meaning to comparisons between Israel and Poland and bet on a rate hike. But the Bank of Israel has much room to maneuver before raising rates, especially as inflationary pressure is from the supply side and a rate hike would stifle demand.

Published by Globes, Israel business news - en.globes.co.il - on November 4, 2021.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2021.

Shekels  / Photo illustration: Shutterstock, Shutterstock.com
Shekels / Photo illustration: Shutterstock, Shutterstock.com
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