The Bank of Israel made an unexpected move yesterday, cutting its benchmark interest rate. The Israeli new shekel dropped versus the euro today, but rose against the US dollar.
The central bank cut its main interest rate by 0.25 percentage points to 1.5 percent. The bank explained its decision by appreciation of the shekel and the similar actions (cutting interest rates) by central banks across the world. Policy makers were also worried about how the start of natural gas production in the Tamar gas field may impact the exchange rate. On top of that, the central bank said it will start foreign-currency purchases to weaken the shekel.
Truth be told, the move was not completely unexpected by analysts as they have anticipated some form of monetary easing. Yet market participants were not expecting the bank to act so soon, therefore yesterday’s announcement has caught them unawares.
USD/ILS fell from 3.6168 to 3.6130 as of 1:45 GMT today. EUR/ILS rose from 4.6930 to 4.7031.
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