The shekel, up 2.1 percent since the Bank of Israel raised interest rates last week, may extend gains on bets the central bank will step up the pace of rate increases to fight inflation, said Leader Capital Markets Ltd.
“The tone emerging from the interest rate announcement sounds more hawkish than in the past,” Rafael Gozlan, chief economist at Tel Aviv-based Leader, wrote in a research note. There’s “a stronger likelihood of stronger rate-hiking in coming months.”
The shekel weakened for the first time in four days, declining 0.2 percent to 3.7663 to the dollar as of 5:23 p.m. in Tel Aviv. It had gained as much as 0.4 percent before reports of an exchange of fire between Israel and Lebanon. The currency was at 3.8480 just before the central bank unexpectedly raised its main interest rate for the first time in four months to 1.75 percent on July 26.
Higher rates make the shekel more attractive for investment than the dollar although appreciation may be limited by central bank involvement in the currency market, he said. The Bank of Israel purchased more than $100 million yesterday as the shekel climbed to the highest level in almost three months, TheMarker reported.
Gozlan expects the shekel to reach 3.75 in the next three months and 3.70 in a year, according to the report.
Forecasters’ expectations of inflation over the next 12 months rose from an average of 2.6 percent at the end of June, to an average of 3.2 percent in mid-July, the Bank of Israel said July 26. The government’s target is for annual inflation of 1 percent to 3 percent.
The benchmark 10-year Mimshal Shiklit maturing in January 2020 was little changed, slipping 0.08 shekel to 106.28, pushing the yield on the 5 percent notes one basis point to 4.5 percent.