Dovish comments by Deputy Governor Abir weaken the shekel

ISRAEL - In Brief 08 Feb 2022 by Jonathan Katz
BoI Deputy Governor Abir succeeded in reducing expectations for an imminent rate hike. Today, the shekel weakened by 0.8% against the basket of currencies following an interview (Globes) with Abir who stated that even if inflation exceeds 3% y/y in the short run, the BoI thinks it will come back down to 2% by mid-2023, which enables the BoI to be patient. He did say that if global inflation spills over to Israel the BoI will react accordingly. In our opinion, this interview was mostly aimed at weakening the shekel (or slowing appreciation). This agenda also explains why the BoI purchased 356ml USD in January while the shekel was weakening anyway under pressure of declining global markets. Regardless, we think the MPC looks professionally at the major monetary factors: the inflation environment, growth/employment and financial stability and it is most likely that these factors will support a rate hike on April 11th assuming the impact from Omicron dissipates. We will elaborate in our upcoming weekly report.

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