The day after the Bank of Israel announced its decision to leave its interest rate for November unchanged at 0.25%, the shekel is strengthening on the foreign exchange market. The shekel-dollar rate is currently down 0.79% in comparison with yesterday's representative rate, at NIS 3.7582/$. The shekel-euro rate is down 0.54%, at NIS 4.7798/€. Yesterday, the representative shekel-dollar rate fell 0.2%, to NIS 3.788/$, and the representative shekel-euro rate rose 0.3%, to NIS 4.805/$.
Besides announcing an unchanged interest rate, the Bank of Israel hinted in its announcement that it might launch a quantitative easing program, such as by buying government bonds, later on. The bank's announcement said, "The bank will use the tools available to it and will examine the need to use various tools to achieve its objectives."
Some market analysts had expected the Bank of Israel to cut its interest rate to 0.1-0.15%, and now say that the central bank has in effect admitted that interest rate reductions are no longer effective, and is preparing the ground for quantitative easing.
On world markets, the US dollar has been weakening slightly against the other major currencies.
FXCM Israel says this morning, "It could be that the speculators will now choose to take their profits and that we shall see a retreat in the shekel-dollar rate, at least until the interest rate decision by the US Federal Reserve on Wednesday. The decision not to lower the interest rate will not however change the trend of a rise in the shekel-dollar rate in the coming months, because of the gaps in growth and interest rates in favor of the dollar. The next key event that will move the shekel-dollar pair is the Federal Reserve's interest rate decision on Wednesday. An announcement of the end of quantitative easing and hints about an interest rate hike would strengthen the dollar."
Published by Globes [online], Israel business news - www.globes-online.com - on October 28, 2014
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