Weakening shekel due to escalation concerns is the main BoI consideration

ISRAEL - Report 23 Oct 2023 by Jonathan Katz

This report was written prior to the Bank of Israel’s October 23, 2023 rate-hold decision, which we forecast in the report.

Geopolitics: Last week witnessed further skirmishes in Israel’s North against Hizballah, with mortar fire into Israel and attempts to penetrate Israel so far resulting in the killing of nearly 20 Hizballah terrorists and a few Israeli casualties, as well. On Sunday, Israel bombed two airports in Syria in order to prevent armament shipments from Iran into Syria and Lebanon. So far, the Northern border has not witnessed the launching of long-range missiles into Israel. Many settlements on the northern border have been evacuated.

Israel continued its bombing of Gaza, targeting Hamas positions and firing points into Israel. The civilian casualties there have been high. Humanitarian aid entered the Gaza strip as two US citizens were released by Hamas. The Israeli cabinet has approved a ground operation but apparently, attempts to free the 212 hostages through international mediation are taking precedence. Meanwhile, Hamas continues to fire missiles into Israel, with little damage due to the Iron Dome defense system. There appears to be no quick or elegant end to this round of violence.

With so much uncertainty, it is no wonder that the shekel is weakening, falling by 2% last week against the basket. In an unusual move last week, Deputy Governor Abir clearly stated that an imminent rate cut is off the table, as policy is currently focusing on market stability (the shekel especially).

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