Bank of Israel November Rate Unchanged: USD/ILS Ascends
- Bank of Israel’s November interest rate unchanged at 0.25%
- CPI declines 0.3% in September and PMI remains just below 50
- Shekel weakens 10.4% against the dollar over the course of 4 months
In today’s press release, the MPC kept the Bank of Israel’s November interest rate unchanged at 0.25%. The committee cites underwhelming and unresponsive economic activity, a weak global outlook, and Operation Protective Edge as reasons for maintaining the key rate.
The market has largely remained unresponsive to the central bank’s 25 bps rate cut made in August. CPI fell by 0.3% in September, accompanied by a 0.2% decline in the 12 month forward expected inflation rate, which now stands at 0.9%. PMI increased by 7.3 points, but still remains below the pivotal 50 and while wages increased 0.7% the number of jobs added declined by 0.3%. Furthermore, the spread between the 10 year Israeli Government bond and the 10 year US Treasury has remained constant; the underpricing of risk has kept new investment low in volume.
A similar push-pull relationship is exhibited in the global market place. Recovery is well underway in the U.S., but a strong dollar may push the anticipated FED rate increase deeper into 2015. In the Asia/Pacific region, the Chinese economy is stabilizing while Japan is committed to an accommodative stance as the economy struggles to adjust to a 3 % VAT increase. Furthermore, low inflation in the Eurozone (0.3%) and falling oil prices have led the IMF to decrease their 2015 global growth forecast by 0.2%.
The geopolitical risk associated with Israel’s role in Operation Protective Edge is also noted, by the central bank, to have slowed economic growth. Midway through the conflict the USD/ILS began a 3963 pip advancement with the Shekel depreciating 4.4% against the dollar in the last month alone. If price continues to remain above the ascending support line, traders can look for higher highs.
USD/ILS Daily Chart
Chart Created by Walker England Using MarketScope2.0