Larger bond issuance is likely to be met with stronger BoI purchases

ISRAEL - In Brief 31 May 2020 by Jonathan Katz
Highlights of the Weekly Israel Macro Wrap Up: The economy continues to open up: Restaurants, pools, health clubs and hotels have opened up. Entertainment venues are scheduled for mid-June. Incoming/outgoing tourism will remain restricted until July, at least. Credit card purchases declined by 26% m/m in April, but Bank of Israel data point to some recovery in the first two weeks of May. The Poalim Consumer Confidence Index increased by 12 points in May following a 25.8-point decline in the previous two months. The opening up of shutdown is improving consumer confidence. Inflation: Petrol prices increased by 8.8% today, and will contribute 0.25% to June's CPI. We currently expect inflation to reach 0.5% in the NTM, but closer to zero excluding energy prices. Housing rental prices are expected to decline on weak demand. The big uncertainty in our mind is when pressure will mount for fiscal restraint (including higher taxation) in 2021. Much will depend on the pace of economic recovery. Governor Yaron has stated that the economy needs to get back to solid ground before any consolidation is considered. We assume some higher taxation will occur only in 2H21. CA surplus expected to improve in Q120: On 14.6, the CBS will release balance of payments numbers. This is an important indicator for the FX market. Judging from GDP data in Q120, we expect the CA surplus to move higher. Total imports declined by 27.5% while export declined by a more moderate 5.9%, in part due to the commencement of natural gas exports. Monetary policy: 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 rea...

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