Astonishing Effects witnessed by the Forex Markets after Bank of Israel Impressively holds Interest Rates

Bank of IsraelAfter the Bank of Israel made its decision of holding the interest rates, there was a stir in the economic markets and the Dollar and Euro were impacted with this decision.

Both the currencies tumbled against the Shekel as the bank refrained from quantitative easing for rates.

Rates in the Markets

Compared to the Bank of Israel rate of ₪3.926*, the greenback lost 2.3% and in two days, was seen to lose 3.2%. Towards later trading, the Dollar and Euro further weakened at 3.919 and 4.3141 with a loss of 1.4% for the day. The shekel was 4.2777 in late trading.

Taking advantage of the dollar’s weakness, the Finance Ministry undertook its first shekel-dollar hedging operation for this year. The ministry said in a statement that the current market conditions and the shekel-dollar rates support the hedging operations that will be part of the annual program of the accountant general. The ministry has not provided any further details on this topic.

The Report that caused the Stir!

Last year in 2014, ₪1 billion worth of hedging deals were conducted by the treasury. When the leading British bank, HSBC mentioned that Bank of Israel would lower the base lending rate for the first time below zero and start a quantitative easing program, the forex market has been in an uproar.

After HSBC’s report, the dollar rate went as high as 4.05 shekels and the TA-25 index saw a record close, even though many economists stated their doubts about the report issued by HSBC regarding Bank of Israel.

The central bank announced that it will take no action as of now, but they will surely keep all their options open. The Governor, Flug, mentioned in an interview that it is not possible for anyone from the Central Bank to leak information to HSBC as all their policy steps are highly organised.

Views from Leading Economists

Even though there have been sharp dollar movements, CEO of Matach24, a currency trader, mentioned that the dollar decline is a passing phenomenon. He said that the decline was a short-term or medium term regression and it will soon gain its strength back as that is inevitable.

He also noted that it will see sharp movements in local markets through the Passover holiday and there will be an influx of pro-shekel investors in an extensive and aggressive manner.

It is said that the prevalent view currently in the market is that the Governor, Flug, will turn towards negative interest rates and opt for the QE policy. As per the policy, the central government will buy government bonds in order to inject additional money in the economy. This is estimated to occur after Passover, which will end on April 11.

The chief economist of Meitav Dash Investment House, Alex Zabezhinsky mentioned that as per his readings of the Governor’s remarks, the odds of the central bank opting for QE are still quite low. Unless there are some extreme circumstances, the Bank of Israel will probably wait to take the next few steps until the consumer price index is released on May 15.

This news of Bank of Israel’s policies has definitely stirred up the markets in a matter of a few days.

₪ – Israeli Shekel