A declining fiscal deficit will likely support lower bond issuance

ISRAEL - In Brief 11 Jul 2021 by Jonathan Katz
The fiscal deficit declines in June The fiscal deficit in the past 12 months declined to 10.1% GDP from 10.5% last month and 12.1% in March. This positive trend is due to strong revenues and declining emergency Covid fiscal support. The BoI expects a fiscal deficit this year of 7.1% GDP, we envision a lower print of 6.5%. According to our estimates, the MoF is likely to continue to shrink the monthly bond issuance program from the current 7bn ILS to 5bn by end-year. This trend will be positive for the bond market and will offset the expected bond tapering by the Bank of Israel, and the likely cessation of purchases once the current program is fully utilized. The Business tendency Survey reflects strong business sector optimism regarding future growth with strong orders, both domestically and abroad.The industrial and retail sectors expect inflation of 1.25%-1.4% NTM.Demand for housing continues to surge with total mortgages reaching 11.6bn ILS in June, a record level. The Governor appears in favor of higher taxation on investors.Monetary Policy: rates remained unchanged last week but the BoI announced that the TLTRO program will cease (negative rates for banks lending to small businesses). The Governor sounded optimistic about the economy but expressed concern over the Delta variant.FX: The BoI purchased 3.2bn USD in June, the BoI sees no real limit to the amount of FX intervention. The Bond market: The Bank of Israel purchased 3.3bn in government bonds and 68.6bn in total out of the 85bn program. The Governor stated that an extension of the program will depend on economic growth. Current economic activity does not support extending the program.Infections increase but ...

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