BoI likely to suggest that bond purchasing may not be extended

ISRAEL - In Brief 04 Jul 2021 by Jonathan Katz

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Highlights: Private consumption slows Credit card purchases declined by 3.6% in May following an 18% increase from January to April. We estimate that credit card purchases declined by 3% m/m (sa) in June, by looking at the weekly data provided through 29.6. Chain store sales declined by 6.6% in May following a 12% increase in the previous three months. Pent-up demand appears to be cooling. High-tech service exports expanded by 15% in Jan-April on average (compared to 2020), a trend likely to continue and supportive of shekel strength. The BoI composite index increased by 0.24% in May reflecting steady economy recovery, although the delay in data has yet to capture the impact of the breakout of hostilities in May. Inflation: The CBS is seriously considering measuring “travel abroad” prices in the CPI for June, following 16 months of imputed estimation. This is likely to contribute 0.1% to June’s CPI. Monetary policy: Today the BoI is expected to maintain present policy rates at 0.1%. The monetary statement is expected to be generally upbeat in light of recent positive indicators. The BoI Research Dept macro forecast will most likely revise the inflation forecast to 2% in 2021 (from 1.3% in April) but maintain 1.2% in 2022. Growth estimates will remain at around 6% for 2021 and 5% for 2022. In the press conference, the Governor is likely to say that if present trends continue, the bond purchase program will not be extended beyond the 85bn ILS allocation. With tapering already occurring in recent months and likely to continue, this framework will most likely end in Q122. We think this announcement is already priced into the market. Infections increase but not seriously il...