The shekel continues to strengthen against the major currencies this morning, following the Bank of Israel's announcement yesterday that its interest rate would remain unchanged in April at 0.1%. The shekel-dollar rate is currently 1.46% below yesterday's representative rate, at NIS 3.9595/$, and the shekel-euro rate is down 0.93%, at NIS 4.3331/€.
On world markets, the US dollar is strengthening against the euro.
Yesterday, the Bank of Israel confounded expectation generated by an HSBC forecast that it would cut its interest rate to a negative level and launch a quantitative easing program. At the same time, the central bank hinted in its announcement that a quantitative easing program remained an option for the future.
The Bank of Israel justified its interest rate decision mainly on the grounds that the current indications are that inflation, which has been negative in the Israeli economy, will return to within the government's target range of 1-3%, albeit at the lower end of the range, within the next twelve months.
FXCM Israel says in its market review this morning, "The shekel-dollar exchange rate sank almost NIS 0.11 to NIS 3.94 yesterday evening, after the Bank of Israel decided to leave its interest rate at 0.1%. This dramatic movement was the result of utterly unhinged speculation based on an estimate by HSBC that the Bank of Israel would lower its interest rate into negative territory and launch a quantitative easing program. The market was swept along by this wild gamble, and the shekel-dollar pair climbed to new peaks, but yesterday afternoon the Bank of Israel poured a bucket of cold water on this assessment, not only leaving its interest unchanged, but also raising its growth and inflation forecasts for 2016, with the bank's Research Department estimating that the interest rate will remain unchanged for the rest of this year. The more exaggerated the speculation, the greater the disappointment and the bursting of the bubble.
"Given the dollar's correction on world markets, it could well be that we shall see the shekel-dollar pair correct downwards in the short term, or settle in the NIS 3.90/$ to NIS 4/$ range. Current sentiment makes it hard to see the market returning the pair above NIS 4/$."
Published by Globes [online], Israel business news - www.globes-online.com - on March 24, 2015
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