The shekel is weakening today against the dollar and against the euro. In early afternoon inter-bank trading, the shekel-dollar exchange rate is up 0.73% against the dollar at NIS 3.5992/$ and up 0.69% against the euro at 4.0147/€.
Yesterday, the Bank of Israel set the shekel-dollar representative rate down 0.056% at NIS 3.573/$ from Friday's rate, and set the shekel-euro rate down 0.213% at 3.987/€.
The shekel is weakening today after the Bank of Israel Monetary Committee decided yesterday to keep the interest rate unchanged at 0.25%. There had been predictions earlier this month that the Bank of Israel might increase the interest rate, however, last week's lower than expected 0.3% rise in the Consumer Price Index for April dampened expectations of a hike.
In citing its reasons for keeping the rate unchanged, the Bank of Israel mentioned this lower than expected inflation. "The inflation environment remains stable above the lower bound of the target range. The CPI for April was lower than pre-publication assessments, but CPI readings for the previous three months surprised to the upside, and year-on-year inflation is at a level similar to that of recent months. One-year inflation expectations and forecasts are slightly above the lower bound of the target range, and forward expectations for medium and longer terms remained near the midpoint of the target."
The Bank of Israel would also have been reluctant to raise the interest rate in order to avoid boosting the already strong shekel. It noted that this year the shekel had, "Strengthened by 6% in terms of the nominal effective exchange rate, and since the last meeting it has appreciated by 1.2%. The appreciation is the main factor that is delaying the continued increase of the inflation rate toward the midpoint of the target."
Published by Globes, Israel business news - en.globes.co.il - on May 21, 2019
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