Two days after the Bank of Israel’s interest rate announcement, the dollar and the euro continue their strengthening trend against the shekel today (Wednesday). At noon, the representative dollar exchange rate was set at NIS 3,168, and the euro exchange rate was set at NIS 3,551. During trading, the dollar strengthened by almost 2% to NIS 3.18 but fell back.
Meanwhile, this morning, the Bank of Israel bought hundreds of millions of dollars in the foreign exchange market and signaled that it was re-intervening in significant dimensions, which also helped the rises. In the last two days, the dollar rose by 3% after a low that lasted for weeks.
The last time the interest rate in Israel was changed was during the first closure in the Corona crisis, when the interest rate was reduced from 0.25% to 0.1% to help the entire population and businesses. It was also the only time that the Bank of Israel changed the interest rate since the appointment of Prof. Amir Yaron as Governor of the Bank of Israel in the summer of 2018, almost three years ago.
An increase in interest rates in Israel will further strengthen the shekel, in contrast to the Bank of Israel’s tendencies to protect exporters, but may moderate the rising demand for apartments, which have already risen in price by 9.9% this year, thus slowing price rises.
The dollar has fallen in the last two weeks to NIS 3.44 (in continuous trading) and requires the Bank of Israel to intervene in trading. Initially, the Bank of Israel refrained from buying dollars following the harsh criticism of the State Comptroller, Netanyahu Engelman, over the bank’s purchase policy, but returned to intervening in trading after the dollar, euro and pound sterling fell in recent weeks to decades of lows, making it difficult for Israeli exports.
Last week, the Governor of the Bank of Israel, Prof. Amir Yaron, said in response to the concerns currently being heard in the economy about an increase in inflation, that the Bank “estimates that inflation in the coming months will be near the upper limit of the target (up to 3%).” “And return to the target center environment (2%) after weakening supply chain disruptions that currently limit supply.”
The governor noted that “we see some encouraging evidence of easing some of the difficulties in global supply chains, and over time this process is expected to support declining commodity and transportation prices. We are also looking at the world in terms of inflation developments.” -OECD “. According to him, “the Bank’s Research Division expects that by the end of the third quarter of 2022, the Bank of Israel’s interest rate will be 0.1% or 0.25%.”
Manufacturers Association: “Changing the trend today in the dollar exchange rate is important but not satisfactory. Even after the small rise in the dollar against the shekel, it is still an erosion of more than 15% in Israeli dollar export revenues compared to 2019, and still leaves the shekel as one of the strongest currencies in the world. The future of exports and employment in the periphery, as well as the continued establishment of high-tech, require monetary and fiscal measures that will mitigate the effect of the strengthening of the shekel. “