External fundamentals continue to support a strong shekel

ISRAEL - In Brief 14 Jun 2020 by Jonathan Katz
Highlights of macro weekly wrap up :The current account surplus reached 3.8bn USD in Q120 following 3.5bn in Q419 and 3.1bn in Q119. The service account surplus increased by 0.6bn and the trade deficit declined by 0.6bn on initial gas exports and weak imports. The net FDI increase to 2.9bn from 2.0bn one year ago. External fundamentals continue to support a strong shekel.Recent data has been mixed:Credit card purchases declined in the first week of June, following strong growth in May.Consumer confidence (CBS) rebounded in May, but is still below pre-Covid levels.Manufacturing exports increased by 7.5% m/m in May.The trade deficit declined to 1.1bn USD in May from 1.5bn in April.Inflation: We expect inflation to come in at 0.1% m/m in May (to be published today) and -1.2% y/y (following -0.6% in April). May's CPI will be impacted by lower housing (rental) prices, a 2% decline in petrol prices and some decline in fresh produce prices. On the other hand, a seasonal increase in clothing prices (7% m/m) will contribute 0.2% to the index. This could surprise on the downside due to weak consumer demand. If so, we could see a lower CPI of zero m/m.Monetary policy: The protocol from the last rate decision revealed that the last vote for rate stability (on 25.5) was 5 to 1, with one MPC member voting for lower rates to zero due to the severity of the crisis and strong impact on unemployment. We continue to expect rate stability at 0.1% through 2021. We think the makeup of the MPC is fairly conservative (including Governor Yaron) and not really considering zero or negative rates. Their preferred monetary tools will continue to be FX and FI intervention.Fiscal policy: The fiscal ...

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