BoI on hold, USD-ILS drifting lower

BoI is widely expected to leave monetary policy on hold today: like in the Czech Republic, in Israel too, latest CPI data portray a gradual fading of the deflationary impulse. This makes it unlikely that the CenBank will now launch fresh unconventional measures, such as negative rates or an FX cap, says Commerzbank. 

CPI deflation has narrowed from -1% y/y a quarter ago to -0.4% y/y in May. This, combined with BoI's close correlation of policy stance with the US Fed, means that policy will be left on status quo rather than eased further heading into Fed tightening. 

As a 'safe haven', Israel has been seeing strong FX appreciation pressure over the past year.

"The country will face stronger appreciation pressure once the economy has fully recovered and exports have re-accelerated. But, BoI will not ease monetary policy to counter this - the CB will only use ad hoc intervention to counter appreciation pressure as it has done in recent weeks - but this is less effective, and therefore we forecast significant shekel appreciation by year-end", states Commerzbank.