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The shekel strengthened for the first time in three days after the Bank of Israel kept interest rates unchanged amid signs the U.S. economy is improving.
The shekel increased 0.2 percent to 3.7876 a dollar at 10:34 a.m. in Tel Aviv, trimming this month’s loss to 1.2 percent. The central bank left its benchmark lending rate at 2.5 percent late yesterday, saying U.S. economic data this month “continue to be encouraging”.
The Bank of Israel had reduced the rate three times in the past five months, including a 25 basis-point cut last month. The decision to hold rates, which had been predicted by all 24 economists in a Bloomberg survey, kept the spread between Israeli and U.S. rates steady. The Federal Reserve said in January it may need to keep interest rates near zero through at least late 2014.
“As a result of the central bank’s decision the rate differential with the U.S. is not narrowing as in previous months, which gives the shekel some support today,” said Eytan Admoni, head of the international department at Bank of Jerusalem Ltd.
In the U.S., data showed applications for jobless benefits applications stayed at the lowest level since 2008, consumer confidence increased to a one-year high and purchases of new homes exceeded economists’ forecasts. About 40 percent of Israel’s gross domestic product is made up of exports, with the U.S. and Europe the largest markets.
“Indicators of real economic activities are consistent with the Bank of Israel forecast of growth of about 2.8 percent in 2012,” the central bank said yesterday.
One-year interest rate swaps, an indicator of investor expectations for the benchmark rate in the period, were unchanged at 2.45 percent. The yield on the benchmark 5.5 Mimshal Shiklit bond due January 2022 fell one basis point to 4.64 percent.
The one-year breakeven rate, the yield difference between the inflation-linked bond and fixed-rate government bonds of similar maturity, rose three basis points to 273, implying an average annual inflation rate of about 2.73 percent. The Tel Aviv Bond 40 Index (TEL-B40), which measures inflation-linked and fixed- rate corporate bonds, gained 0.1 percent to 263.16.
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