We wrote last week in the FX Blog that sustained appreciation until recently and ongoing deceleration in inflation at the consumer level mean that Israel’s BoI might be the next central bank to cap FX appreciation.
Since then the Q2 GDP report on Sunday came in weaker than expected at +1.7% QoQ annualized, and then the BoI’s inflation survey yesterday dropping to 1.1% in August from 1.3% the previous month. The decline in inflation expectations among market participants shows that the drop in headline inflation to +0.3% YoY (+0.5%) in July has now started to impact on expectations, a scenario authorities obviously are uncomfortable with and which has triggered further speculation about a FX cap.
Read the full report: FX Daily