The shekel continued to depreciate over the weekend and has consolidated above the NIS 4/$ rate. On the foreign exchange market, the Bank of Israel set the representative shekel-dollar rate up 0.496% on Friday, at NIS 4.049/$, and the representative shekel-euro rate was set 0.722% lower at NIS 4.280/€. The shekel has weakened by 5% since the start of the war and if it rises above the NIS 4.10/$ threshold it would have returned to its 2009 value against the US currency.
In futures trading the shekel-dollar rate is a further 0.70% higher at NIS 4.0572/$ and the shekel-euro rate is 1.20% higher at NIS 4.30/€.
This volatility saw the Bank of Israel issue an unusual announcement last week in which it indicated that it won't be cutting the interest rate at the Monetary Committee's meeting tomorrow. "The Bank of Israel’s policy is focused on stabilizing the markets and creating maximal certainty for the economy and the public at this time. The Bank has started using a dedicated tool to stabilize the foreign exchange market, which has contributed to stabilizing and calming other markets as well, and we aim that the other monetary policy tools will not pose a challenge to this aim in the immediate term," the central bank said.
Bank Hapoalim chief markets strategist believes that the Bank of Israel; is working to reduce uncertainty in the markets. He said, "It has been working swiftly in the foreign currency market and began selling dollars so that it has succeeded in moderating the volatility on the foreign currency market, even if it has not restrained the continuing depreciation."
He added that despite the forecast that the interest rate won't change significantly in this week's decision, even so the market is pricing a 0.25% rate cut by the central bank next month.
Leader Capital Markets chief economist Yonatan Katz believes that the interest rate will remain unchanged. He wrote in his weekly review, "The Bank of Israel currently emphasizes stability in the markets (mainly the shekel) and fears that a sharp drop in interest rates would invite capital movements towards the dollar due to the widening of the interest rate differentials. At this stage, additional considerations such as the expected moderation in both economic activity and inflationary pressures are of secondary importance."
He anticipates that tomorrow Bank of Israel Governor Prof. Amir Yaron, "Might indicate that interest rates could be lowered at the end of the war in order to support economic activity."
Published by Globes, Israel business news - en.globes.co.il - on October 22, 2023.
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