A more expansionary monetary policy likely today

ISRAEL - In Brief 06 Jul 2020 by Jonathan Katz

The Bank of Israel is likely to announce a more expansionary monetary policy today, in light of the rather weak recovery and headwinds from the spike in infections (increasing limitations on certain sectors), as well as the deeply negative core inflation in May (-0.5% y/y). This more expansionary policy could be expressed by lower rates (not our base case, but certainly possible), an increase in the bond purchasing program (in conjunction with the expected additional fiscal stimulus) from 50bn ILS to say 75-100bn and a more dovish forward guidance regarding low rates for a considerable period of time. A combination of these tools is also a possibility. We think the combination of a more negative growth outlook (relative to the last rate decision), stubborn deflation, and a strong shekel will give the doves on the MPC the upper hand today.

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