Shekel’s strength clouds Bank of Israel’s inflation outlook

David Vaaknin

The Bank of Israel’s policy of maintaining high levels of foreign exchange reserves may be in part to blame for the strength of the shekel, which in turn is hampering the central bank’s ability to reach its 2% inflation target.

A sharp, unexpected fall in inflation prompted the introduction of unscheduled forward guidance by the bank last week, when it committed to make no more rate hikes for some time.

The Israeli currency has appreciated sharply against both the US dollar and the euro this

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