Following volatility on Israel’s foreign exchange market and the sharp depreciation of the shekel, Bank of America analysts have published an Israel Review saying that further weakness in the shekel could trigger Bank of Israel intervention to smooth the volatility of recent days. Bank of America is bearish on the shekel and
Bank of America wrote, “Political noise in Israel doesn’t usually impact Israeli assets or economic policy but we believe this time is different. Local sentiment has the potential to cause domestic investors to shift their portfolios away from shekel-based assets.
“The shekel has recently broken its long-standing correlation with the US equity market. If this sentiment continues we expect further shekel depreciation. The Bank of Israel could intervene in the currency rather than increase its policy rate further, as it is close to ending its hiking cycle, and hikes usually have little effect on the currency when the underlying factor behind depreciation is confidence.”
Bank of America describes inflation in Israel as “sticky but has likely peaked” and sees inflation falling from its current annual rate of 5.4% to 3.4% by the end of the year. Bank of America sees one more Bank of Israel rate hike to 4.5% and if the data allows, a rate cut back to 4.25% in the final quarter of the year.
Published by Globes, Israel business news – en.globes.co.il – on February 22, 2023.
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