Even though the Bank of Israel has purchased nearly $30 billion in foreign currency in 2021 in order to moderate the strengthening of the shekel and assist exporters, the shekel has appreciated by 6% against the basket of currencies of Israel’s major trading partners, to a record strength, and is continuing to gain.
On the foreign exchange market, the Bank of Israel set the representative shekel-dollar rate down 0.22% on Friday, at NIS 3.118/$, and the representative shekel-euro rate was set 0.20% lower at NIS 3.603/€. In futures trading, the shekel-dollar rate is down a further 0.26% at 3.1098/$ and the euro is down 0.15% at NIS 3.5971/€.
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Meitav DS chief economist Alex Zabezhinsky wrote in his weekly survey, “The main reason for the swift appreciation of the shekel has been expectations for a rise in the interest rate in Israel. According to the Interest Rate Swap (IRS), the interest rate inherent in Israel in another three to five years has moved higher than the interest rate in the US. We estimate that the Bank of Israel will continue to intervene in the foreign currency trading market even though it has reached the threshold of its purchases.
On the assumption that the current exchange rate will remain at the same level in the coming six months, its influence on the inflation rate is expected to be about 0.3% spread between a response to the travel abroad area in the November index (about 0.1%) and a delayed response to several other categories. The interesting thing is that investors place very major importance on the influence of the exchange rate on inflation, while the factor with the strongest and clearest impact on inflation in Israel, the producers price indices (PPI) abroad, staying under the radar. The correlation between the PPIs in the US and Europe and inflation in Israel is four times greater than changes in the shekel exchange rate.
The rise in the annual rate of the PPI in Europe from 10.3% three months ago to 16% in September, as published last week, is expected to add about 0.3% to inflation in Israel. According to the historical connection between the PPPI in Europe and inflation in Israel, there is a high likelihood that the rate of inflation in Israel in December will rise above 3%.”
Published by Globes, Israel business news – en.globes.co.il – on November 7, 2021.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2021.
Read More:Shekel 6% stronger in 2021 and still gaining
2021-11-07 10:54:19
