Shekel weakens after rate hike

The shekel is weakening today against the dollar and against the euro, after the Bank of Israel raised the interest rate by 0.5% yesterday to 3.25%. In afternoon inter-bank trading, the shekel exchange rate is up 0.59% against the dollar at NIS 3.484/$ and up 0.79% against the euro at NIS 3.576/€.

On Monday, the Bank of Israel set the representative shekel-dollar rate down 0.374% from Friday, at NIS 3.464/$, and the representative shekel-euro rate was set 1.343% lower at NIS 3.545/€, reflecting the weakness of the dollar on international forex markets.

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Asked about the impact of the rate hike on the shekel-dollar exchange rate, Bank Hapoalim chief strategist Modi Shafrir said, “There will be no noticeable effect because the dollar-shekel rate is currently mainly affected by developments on the world’s stock markets, and in the longer term by the basic forces that support a strong shekel. The interest rate differentials do not have a material effect on the shekel-dollar rate today, especially when the interest rate hikes in Israel are quite synchronized with the interest rate hikes in the US.”

Mizrahi Tefahot Bank chief markets economist Ronen Menachem said, “Since the last rate announcement in October, the shekel has strengthened by 3% against the dollar. To the extent that the increase in interest rates in Israel will be lower than in the US, and the Bank of Israel is aware of this, this could lead to a devaluation of the shekel and so the Governor is coordinating the rate to the US rate. For the Governor, the strengthening of the shekel is another brake on increasing inflation, because when dollars are converted into shekels, the stronger the shekel is, it is a deflationary factor. On the other hand, he will keep a close eye on this because he does not want it to harm the exporters.”

Published by Globes, Israel business news – en.globes.co.il – on November 22, 2022.

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