Isranomics

Shekel weakens ahead of crucial Knesset vote, while Bank of Israel monitors Fed’s interest rate decision

by | Jun 14, 2023 | Economy | 0 comments

The shekel experienced a decline just hours before the Federal Reserve’s decision on interest rates. Meanwhile, in Israel, attention was focused on the upcoming vote in the Knesset regarding the representatives of the committee for the selection of judges.

The dollar saw a 0.7% increase, reaching a trading rate of NIS 3.58, while the euro rose by 0.6% to NIS 3.87.

Market expectations anticipate that the Federal Reserve will maintain the interest rate at the current level of 5.25%. This decision comes in light of positive indicators reflecting a cooling rate of inflation in the United States. Recent data released yesterday reveals that the U.S. consumer price index for May stood at 4% on an annual basis, the lowest level observed in two years.

Yoni Penning, Chief Transaction Strategist at Mizrahi Tefahot’s Chamber of Commerce, spoke to Calcalist on the situation, stating, “The latest inflation data will likely be the primary factor influencing the Fed’s decision not to raise interest rates this time. A 4% inflation rate still falls short of the Federal Reserve’s target. However, the apparent slowdown in the US and global economies seems to pose a greater risk at this stage.”

In Israel, inflation data is scheduled to be published tomorrow. Forecasts indicate that the price index for May is expected to rise by 0.6% or possibly higher. Bank of Israel Governor Amir Yaron highlighted six key variables in analyzing inflation in Israel. Regarding three of these variables – the budget, world inflation, and the wage agreement – the governor stated that they “do not threaten inflation.” However, he mentioned that the remaining three variables – exchange rates, housing prices, and food price inflation – are a major concern and could have a negative impact on achieving the inflation target.

Governor Yaron emphasized the significance of the exchange rate, stating that it is currently the most important variable influencing inflation. He reiterated that the bank’s analysis suggests that changes in the exchange rate “largely stem from domestic factors and are significantly influenced by events related to constitutional changes.”

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