BoI Deputy Governor: Weaker shekel causing more rate hikes

AuthorAharon Katz and Globes correspondent
Published date24 May 2023
Publication titleGlobes (Rishon LeZion, Israel)
This week Bank of Israel Deputy Governor Andrew Abir was interviewed by "Reuters" after the rate hike announcement and provided explanations for at least some of the reasons for the high inflation and why the Bank of Israel's forecasts of its imminent fall have been mistaken again and again. Abir strongly stressed, "The progress that we would have expected on getting inflation back into the target has been slower predominantly because of (the shekel's) exchange rate and creation of the political uncertainty that we've seen over the last few months."

He added, "We've probably had to do more monetary policy tightening than we had envisaged because of the political uncertainty leading to an increase in Israel's risk premium, depreciation of the currency, and therefore inflation being higher."

Abir was also interviewed by "Bloomberg" and said that the extent of monetary tightening "has been the cost of the depreciation of the currency around the political uncertainty, increasing this premium for Israel around the judicial reforms." Since the start of 2023, the shekel has depreciated by 4% against the US dollar.

Abir added, Probably the predominant factor" behind the shekel's depreciation this year is the change in the behavior of Israeli institutional investors. "They didn't sell as many dollars to hedge their foreign exchange exposure as they would normally have done."

Abir's remarks can be fully...

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