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COUNTRY INSIGHTS

Despite January's upward CPI surprise, rates to remain on hold
ISRAEL · Report · 18 Feb 2019

Although January's CPI surprised on the upside, the inflation environment remains fairly tame. We expect inflation to reach 1.1% in the NTM impacted by a strong shekel and weakening wage pressure offset by tax increases and higher housing rental prices. GDP growth reached 3.1% saar in Q418, in...

January's fiscal data is expected to impact the bond market
ISRAEL · Report · 11 Feb 2019

Robust wage growth remains a factor supportive of some inflationary pressure. On the other hand, the shekel continues to appreciate, moderating inflationary pressure. Higher rental prices and likely tax hikes following the election will be the main factors contributing to inflation this year (we ...

Rate hike unlikely before 2020
ISRAEL · Report · 04 Feb 2019

Recent data point to some increasing slack in the labor market. In addition, private consumption demand appears to be slowing. Lastly, the shekel continues to appreciate against both the dollar and the Euro. These are all factors supporting low inflation and therefore, rate stability as well, thr...

Growth appears steady in Q418 at around 3%
ISRAEL · Report · 28 Jan 2019

Several economic indicators point to steady growth in Q418 of 3%, near Israel's long term growth potential. The Bank of Israel sees the economy running at full capacity, which explains the rapid growth in imports. Nevertheless, the emphasis of policy is currently on pushing stronger inflation tow...

Underlying inflation remained fairly subdued in 2018
ISRAEL · Report · 21 Jan 2019

Inflation remained below target in 2018 for the fifth straight year, reaching 0.8% y/y. Core inflation reached 0.7% similar to last year, despite a weaker shekel and wage pressure. We expect inflation in 2019 to reach 1.1%, assuming fiscal consolidation following the elections spills over to inf...

The CA surplus is expected to increase in 2019-2020
ISRAEL · Report · 14 Jan 2019

The CA surplus is expected to increase in 2019-2020 on the back of strong exports of natural gas and electronic components, supportive of a strong shekel. The new BoI Governor appears to be in the dovish camp, stressing that rate hikes will depend on an acceleration of inflation. We current expec...

The bond market will react to the BoI macro forecast for 2019-2020
ISRAEL · Report · 07 Jan 2019

GDP growth in 2018 reached 3.2% on fairly balanced growth, but slowing from 2017, and expected to reach 2.8% in 2019. We expect a rate hold decision today but the tone of the announcement will shed some light on the new Governor's bias. More important will be the BoI macro forecast, which is like...

Fiscal consolidation expected following the elections, including tax hikes
ISRAEL · Report · 31 Dec 2018

PC indicators point to some acceleration in Q418, compared to Q3. The labor market remains tight, supportive of wage pressure. Israeli institutions are increasing the FX exposure in their portfolios. Fiscal consolidation is expected following the elections, which is likely to include higher taxe...

Low inflation and elevated global risks support rate stability in January
ISRAEL · Report · 24 Dec 2018

Highlights: * Housing starts have slowed this year to an annual pace of 46k units. - On the other hand residential completions have accelerated. - Increasing completions is likely to have a moderating impact on housing rental prices (increasing housing inventory). - Our inflation foreca...

Inflation expectations move higher on planned price hikes and weaker shekel
ISRAEL · Report · 17 Dec 2018

November's CPI (1.2% y/y) came in slightly lower than expected, and core inflation declined to 0.8% y/y. We see inflation reaching 1.3% in 2019 on a slightly weaker shekel and a steady increase in housing rentals. Although the CA surplus surprised on the upside (reaching 2% GDP in Q318), FX deman...

The FX market likely to react to lower CA surplus in Q3
ISRAEL · Report · 10 Dec 2018

Wage growth accelerated in September, reaching 4.4% y/y, supportive of some inflationary pressure. The fiscal deficit reached 3.5% of GDP in LTM as tax revenues remain soft in November. Today, the protocol from the most recent rate decision will be released, revealing how hawkish the MPC is leani...

Following last week's hike, tightening path expected to be gradual
ISRAEL · Report · 03 Dec 2018

Policy rates moved higher last week (as we had expected but against market consensus), pushing bond yields higher. We expect the tightening path in 2019 to be very gradual (we see rates at 0.5% by end-2019), and dependent on Fed tightening. Private consumption (non-durables especially) indicator...

We expect a rate hike today, against market expectations
ISRAEL · Report · 26 Nov 2018

We expect a rate hike today, against the overwhelming consensus expecting a rate-hold decision. A rate hike will be supported by inflation entrenchment, fairly steady growth, a tight labor market/wage pressure and recent shekel depreciation. Although the MPC may decide to wait for the new Governo...

A rate hike in November remains a real possibility
ISRAEL · Report · 19 Nov 2018

Headline inflation in October reached 1.2% y/y, core 1.0% y/y, and appears well entrenched within the target range. GDP growth appears soft in Q318 (2.3% saar), but excluding taxes on imports, GDP growth hit 3%. We see a near 50% chance of a rate hike in November, despite the fact that there will...

The bond market is starting to price in a possible dent in fiscal credibility
ISRAEL · Report · 12 Nov 2018

Highlights: Wage growth is running at an annual pace of about 3.5% y/y. * Wage growth is impacted by a tight labor market and minimum wage hikes. Trend data point to recent moderation in wages. * This is fairly rapid and will have some impact on inflation. Business sector expectations f...

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