Meitav Dash analyst Alex Zabezhinsky: The Bank of Israel will probably not cut its interest rate, but it will be a close call.
The shekel is mixed against the major currencies this morning. The shekel-dollar exchange rate is currently up 1.24% in comparison with Friday's representative rate, at NIS 3.911/$, and the shekel-euro rate is down 0.19%, at NIS 4.4164/€.
The US Federal reserve's decision last Thursday not to raise its interest rate reignited concerns over the health of the global economy, particularly over the slowdown in the world's second largest economy, China.
On Wednesday, the Chinese procurement managers' index for September will be released. The index is forecast to rise to 47.5 points, compared with a reading of 47.1 points in August, but this will still be a multi-year low.
Meitav Dash chief economist Alex Zabezhinsky writes, with a view to the Bank of Israel's interest rate decision on Thursday, "Following the decision not to raise US rates, the global currency war is liable to flare up again. Against a decision to reduce shekel rates further stands the consideration that taking the rate negative would be liable to raise risks with no clear benefit in the form of higher inflation or a boost to growth. The risks in the housing market continue to pile up, with housing prices rising sharply in the past few months, and new mortgages reaching record levels. On the other hand, spreads in the corporate bond market have widened and mutual funds are not taking in money.
"The Bank of Israel could choose to wait for the economic picture to clear. There is apparently some fall in activity, but it is not all that clear. The rise in tax collections continues, and the labor market remains strong. In addition, the shekel has fairly well maintained its depreciation since the last Monetary Committee meeting. To sum up, we estimate that the considerations against an interest rate reduction will prevail, but it will be a close call," Zabezhinsky concludes.
FXCM Israel says in its market review this morning, "The shekel-dollar pair is climbing upwards and testing the key NIS 3.9/$ level, this despite the US Federal Reserve's last week not to raise its interest rate. The assessment on the markets is that the rise in the shekel-dollar rate represents a technical correction, but a breakthrough above NIS 3.9/$ could extend the move upwards."