The shekel weakened sharply against the currency basket after the rapid appreciation recorded in the past month, following a slowdown in the inflation rate – which lowers the pressure to raise interest rates in Israel, against the backdrop of declining overseas stock markets.
The dollar jumped by 1.86% and its representative rate was set at NIS 3.168, after trading during the day today, the dollar jumped by 2.3% to NIS 3.18; The euro rose by 1.5% to a level of NIS 3,551; The pound rose by 1.8% and its representative rate was set at NIS 4,232.
The weakness of the stock market in recent days has also contributed to the weakening of the shekel. A significant factor contributing to the strengthening of the shekel in the days of rising markets – institutional hedging of their investments abroad – moderates the pressure on the shekel in the face of declines in stock markets. In a series of declines. Recall that as global stock markets rise, institutional exposure to forex increases technically, and since the exposure of these entities is already at record levels, institutions tend to sell dollars during periods of stock market gains to reduce their exposure to forex. The situation is reversed when markets fall, especially when in the past year the correlation between the US stock market and the dollar against the shekel has been very high.
It is not inconceivable that the change in direction in the foreign exchange market, which led to a weakening of the shekel by 2% against the dollar last week, was recorded against the backdrop of senior Bank of Israel figures in October. More action before the Bank steps in to raise interest rates to curb inflation Other banks around the world, such as Poland, the Czech Republic and New Zealand, have been forced to raise interest rates due to rampant inflation. In Israel, the situation is different. In an interview with Globes on the difference between Israel and these countries, he emphasized that inflation is low compared to them, and according to the Monetary Committee of the Bank of Israel, inflation is expected to fall further so that they are not in a hurry to change monetary policy.
In an interest rate announcement this week, the Bank of Israel expressed confidence about the temporality of inflation, and did not attach importance to the drama recorded in the foreign exchange market in October, except for the statement that “the bank continues to operate in line with the economy and continued economic activity.” According to the governor, the central bank has “more degrees of freedom” after the inflation rate slowed in October from 2.5% to 2.3%. Allow the economy to adapt to change.
The Bank of Israel wrote that the Monetary Committee will continue to pursue an expansionary policy over time, in accordance with the rate of growth, employment and the path of inflation. In this context, growth figures for the third quarter were lower than expected (2.4%), but together with the second and fourth quarters, growth this year is expected to reach over 6% according to the Bank of Israel. Regarding such inflation, the rate of price increases is expected to moderate according to the Bank of Israel, and the unemployment rate has stabilized at around 7%. These factors may allow the Bank of Israel to wait with an increase in interest rates beyond what is expected, after other countries in the world, which weakens the pressure to strengthen the strong shekel.