Despite weak inflation, a strong shekel and soft underlying growth, rates remain on hold

ISRAEL - Report 25 Nov 2019 by Jonathan Katz

Despite weak inflation, a strong shekel and soft underlying growth, rates remain on hold.

* Headline inflation is running at 0.4% y/y, and core at 0.5% in October.
* The shekel has appreciated by 2.3% (against the basket) this month, and remained stable since the last rate decision.
* Despite a strong headline GDP print in Q319 (4.1%), excluding inventories growth actually contracted by 2.1%.
* Exports, fixed capital investments, and non-durable PC all disappointed.
* On the other hand, the global economy appears to have stabilized, with downside risks less elevated.

It is not clear how the current political uncertainty impacted rates. So far, the shekel and bond markets appear unphased. Moody's reaffirmed Israel's A1 credit rating with a positive outlook.

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