The shekel to US dollar foreign exchange rate is virtually unchanged, down 0.01%, compared with yesterday’s representative rate, to NIS 3.758/$, and the shekel-euro exchange rate is down 0.06% to NIS 4.927/€.

Asian stock markets fell for the sixth consecutive session today, after Wall Street closed lower yesterday. European markets are opening with losses. Alcoa Inc. (NYSE: AA) opened the reporting season on Wall Street with good results.

In Israel, the Bank of Israel yesterday warned of a budget blowout in 2013, reaching 5% of GDP or NIS 47 billion, due to unfunded expenditures, and said that takes hikes are inevitable.

In international markets, the dollar is traded at $1.32 against the euro, and at ¥83.41 against the Japanese yen.

In Europe, secured Greek bondholders will receive $2.5 billion on their credit default swaps (CDS), a 78.5% payout on their investment. Globally, the price oil, which has risen 15% since January, continues to rise against the backdrop of tensions in the Middle East.

The US has sent reinforcements to the Persian Gulf, and Turkish President Recep Tayyip Erdoğan is due to meet Iran’s leaders, adding pressure on Iran to pull back on its military nuclear program.

In its accompanying statement, the central bank said expectations for inflation over the next 12 months are within its target range of 1% to 3%. The same goes for the actual inflation rate seen in Israel over the past 12 months, the statement said.

But over the past month, expectations for inflation have risen about 0.2 of a percentage point to around 2.5%, the bank said.

Looking at the economic picture abroad, a critical matter for Israel’s export-driven economy, the data in the U.S. in the past month were “relatively encouraging” while in Europe and Japan, macroeconomic figures “continued to indicate a recessionary environment,” the Bank of Israel said.

Most analysts had expected rates to be left unchanged for March.

Last June, the Bank of Israel had raised the rate a quarter of a percentage point, to 3.25%, and then left it there through September. The rate went to 3% for October and November, 2.75% for December and January and then 2.5% for February.

Ori Greenfeld, head of macroeconomics at the Israeli investment house Psagot, said in a statement before the rate call that the central bank would stand pat because of a recent rise in inflation expectations as well as improvement in the financial markets.
`Potential adverse developments’ in Europe

“Nonetheless, apparently [the Bank of Israel] continues to fear potential adverse developments in the European crisis and the effects of European countries entering into recession on Israel’s economy,” the analyst said. “Hence, we continue to expect more interest-rate cuts in the next 12 months, to [a range of] 2% to 2.25%.”

Also in a pre-decision statement, investment bank Brown Brothers Harriman also forecast that the Bank of Israel would leave rates in place but also saw a chance for a surprise cut due to softness in recent economic data.

An initial estimate of fourth-quarter gross domestic product said the economy grew 3.2%, compared with 3.8% in the third quarter, the Bank of Israel said. And the consumer-confidence index for January from the Central Bureau of Statistics improved somewhat but continued negative, it noted.
Shekel moves

In the past month, the shekel (US:USDILS) strengthened 0.7% against the dollar, “a much more moderate pace than the trend in most other economies,” the Bank of Israel wrote.

Brown Brothers Harriman called the shekel “one of the worst-performing [currencies] in the emerging-markets pack so far this year, basically flat against the dollar year to date.”

The Brown Brothers analysts said the shekel should continue to underperform as the central bank “is likely to remain sensitive to currency strength along with rising political risk due to tensions with Iran.”

A stronger local currency makes Israel’s exported products more expensive for buyers overseas.

As a technical matter, the Brown Brothers analysts said that the US dollar to Israeli shekel pair had not pierced support around 3.71. They said their near term target is for the shekel weakening to 3.8654, which it touched in January, and from there to around 3.92.

The shekel last closed at more than four to the US dollar in mid May 2009, according to FactSet Research data.

In international markets, the dollar is strengthening against the euro, and is traded at $1.30/€, amid more market jitters about Greece and other sovereign debts in Eurozone countries. The dollar is traded at ¥78.455/$ against the Japanese yen.

Yesterday, the US Federal Reserve Board published the minutes of its last meeting, which show strong support for a third qualitative easement (QE3) program, but that there was no majority to approve it. In Europe, it now seems that EU approval of the €130 billion second bailout for Greece will not be approved until after the Greek elections in April.

In Israel, the Central Bureau of Statistics announced yesterday that the Consumer Price Index (CPI) was unchanged in January, belying the analysts’ forecast of a drop of 0.2%.

The shekel gained as much as 0.7 percent against the dollar to 3.8051, the highest since Jan. 3. The currency was at 3.8152 at 12:20 p.m. in Tel Aviv. Two-year interest-rate swaps, an indicator of investor expectations for rates over the period, rose one basis point, or 0.01 percentage point, to 2.55 percent, the highest level since Dec. 14.

Israel’s economy will grow 3.2 percent in 2012, Finance Minister Yuval Steinitz told a parliamentary committee in Jerusalem today. The World Bank said today the world economy will grow 2.5 percent this year, down from a June estimate of 3.6 percent.

“The local economy is still expanding at a fairly good pace and the central bank may wait and hold interest rates this month to cut rates in coming months,” Eytan Admoni, head of the international department at Bank of Jerusalem said.

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The shekel gained as much as 0.8 percent against the dollar to 3.8032, the highest since Jan. 3. The currency was at 3.8046 at 5:55 p.m. in Tel Aviv. The yield on Israel’s 5.5 percent bonds due in January 2022 dropped for the first time in four days, declining four basis points, or 0.04 percentage point, to 4.47 percent.

Israel’s economy will grow 3.2 percent in 2012, Finance Minister Yuval Steinitz told a parliamentary committee in Jerusalem today, while the World Bank expects global growth of 2.5 percent. The Bank of Israel kept its benchmark rate unchanged at 2.75 percent in December, saying it wanted to retain its ability to react to developments.

“The local economy is still expanding at a fairly good pace and the central bank may wait and hold interest rates this month to cut rates in coming months,” Eytan Admoni, head of the international department at Bank of Jerusalem Ltd., said by telephone.

Two-year interest-rate swaps, an indicator of investor expectations for rates over the period, held at 2.54 percent, the highest level since Dec. 14. The next rate decision is scheduled for Jan. 23. Admoni expects the benchmark lending rate will fall to 2 percent by year end.

The Israeli shekel to US dollar exchange rate is down 1.26%, compared with yesterday’s representative rate, to NIS 3.745/$, and the shekel-euro exchange rate is down 0.02% to NIS 5.047/€.

In the foreign currency market yesterday, the Bank of Israel set the shekel to dollar representative exchange rate at NIS 3.793/$, up 0.32% on Tuesday’s rate, and set the shekel-euro representative exchange rate at NIS 5.048/€, down 0.03%.

In international markets, the dollar is mixed against leading currencies. It is down 0.1% against the euro to $1.3451/€, but up 0.1% against the pound to $1.5684/₤ and up 0.1% against the yen to ¥77.677/$.

Yesterday, in a coordinated move, the US Federal Reserve, European Central Bank, the Bank of England, the Bank of Canada, the Swiss National Bank and the Bank of Japan cut the interest rate on dollar swap deal in an effort to increase market liquidity and fend off a global recession.

The central bankers are also trying to stem the debt crisis in Europe from spreading to more countries. A top market source told “Globes”, “They appear to be laying the groundwork for an interest rate cut in Europe this month.”

The shekel slumped as much as 1.9 percent against the dollar, the biggest intraday drop since May 23. The currency was 1.2 percent lower at 3.6665 at 4:47 p.m. in Tel Aviv as the greenback strengthened against all of 16 major currencies.

The yield on the benchmark 5.5 Mimshal Shiklit bond due January 2022, fell three basis points, or 0.03 percentage point to 4.59 percent, the lowest since Oct. 9.

“The Greek referendum is adding to concern on the implementation and effectiveness of the EU debt relief plan to curb a crisis in the region” Eytan Admoni, head of the international department at Bank of Jerusalem Ltd., said by telephone. “Investors are keeping away from riskier assets.”

Emerging-market stocks and currencies declined today after Greek Prime Minister George Papandreou pledged to hold a referendum on the European debt plan. Fitch Ratings said the proposal posed a threat to Europe’s financial stability. Group of 20 leaders will gather this week for a summit in Cannes, France, to discuss the debt crisis.

The Stoxx Europe 600 Index slid 3.3 percent, bringing the two-day decline to 5.4 percent. The TA-25 Index retreated 2.8 percent, the most since Oct. 4, to 1,102.07.

Israeli five-year credit-default swaps, or the cost of protecting government debt against non-payment for the period, increased 10 basis points to 158, according to CMA. The data provider is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

Defense Minister Ehud Barak today called for expanding military spending and breaching budgetary targets, a move Finance Minister Yuval Steinitz said might weaken the economy and increase unemployment.

“This isn’t the time to increase spending as the global economy is in panic and amid social protests against high living costs,” said Rony Gitlin, head of spot trading at Bank Leumi Le-Israel Ltd. in Tel Aviv.

The cabinet this week approved a plan that will raise taxes on companies and the wealthy while easing the burden on the middle class, after rallies brought hundreds of thousands of protesters to the streets.

The Finance Ministry said yesterday growth will slow to about 4 percent next year from 4.8 percent in 2011 as an expansion in exports eases.