Bank of Israel Holds Rates, No New Announcement on Shekel

(Bloomberg) -- The Bank of Israel held rates near zero for the 13th time to support the economy’s recovery from Covid-19, and said it would intervene as needed to rein in a strengthening shekel. 

The Bank of Israel didn’t announce any new policies to tame the rising shekel, one of the best-performing major currencies in the world this year, saying it would continue “to act taking into account the state of the economy and the continuation of economic activity.”

• All 16 economists surveyed by Bloomberg predicted the Bank of Israel would maintain the base rate at 0.1%

Key Insights

• One of the major considerations for policy makers has been the dramatic rise in the shekel. Israel’s currency hit a 26-year high against the dollar earlier this month due to strong foreign investment, a large current account surplus and hedging activities by Israeli institutional investors. This has had a negative effect on exporters, especially those with tight profit margins in manufacturing sector.
• Israel’s inflation rate has remained consistently below the OECD average, even as countries around the world grapple with rising shipping and commodity prices. Inflation slowed unexpectedly in October to 2.3%, partly because the strong shekel made imports cheaper.
• Growth slowed to 2.4% in the third quarter, missing estimates, as the global chip shortage hit tax revenues from car imports. Israel’s economy has bounced back from the pandemic, however, and is predicted by the Bank of Israel to grow by 7% this year, due to revenues from the country’s flourishing tech sector.
• Unemployment continues to decline, with the broad measure of unemployment falling to 7.0% in October from 7.9% in the previous month. New lockdowns are unlikely for now given that Covid-19 cases remain low; more than 75% of people older than 50 have received a booster shot and the country began inoculating children under the age of 11 this week.

Market Reaction

• The shekel was little changed against the dollar at 4:08 p.m. in Tel Aviv. The currency had gained 4.1% versus the greenback this year prior to the announcement.

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