Strong shekel rebound soothes rate hike jitters

The shekel is strengthening today against the dollar and against the euro. In afternoon inter-bank trading, the shekel exchange rate is down 1.07% against the dollar at NIS 3.502/$ and down 0.15% against the euro at NIS 3.758/€.

Yesterday, the Bank of Israel set the representative shekel-dollar rate up 0.941% from Friday, at NIS 3.540/$, and the representative shekel-euro rate was set 0.381% higher at NIS 3.782/€.

The shekel’s strong appreciation today ends a run which saw the Israeli currency lose over 4% against the dollar in just 10 days, which many attributed to the political tensions in Israel over the planned judicial reform.

While the Bank of Israel is expected to raise the interest rate by 0.25% next week to 4%, many analysts suggested that because of the weakness of the shekel, the hike might be 0.5% to counter rising inflation caused by the higher cost of imports.

Leader Capital Markets chief economist Yonatan Katz said, “The depreciation of the shekel continues due to political uncertainty and fear of capital outflows. This trend, if it continues in the coming week, could support an interest rate hike of 0.5%” – with the caveat that things depend on the January Consumer Price Index, which will be published on Wednesday this week.”

Katz expects the January Consumer Price Index (CPI), to be announced tomorrow, to be up just 0.1%.

Bank Hapoalim chief strategist Modi Shafrir believes that the interest rate will rise by 0.25%, he adds that in his estimation the Bank of Israel, “Will give relatively great weight in the upcoming decision to developments on the foreign currency market, so that the more the shekel continues to weaken towards NIS 3.65/$, the stronger likelihood of a 0.5% hike.”

Published by Globes, Israel business news – en.globes.co.il – on February 14, 2023.

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