Rate stability expected today on global risks, soft inflation and strong shekel

ISRAEL - Report 20 May 2019 by Jonathan Katz

Highlights:

GDP growth reached 5.2% saar in Q1 2019.
* Excluding import taxes, GDP growth was 3.7%, following 3.0% in Q4 2018.
* PC growth reached 7.6%, exports: 6.2% and investments: 10%.

Inflation surprised on the downside in April (0.3%), slowing to 1.3% y/y (from 1.4% in March).
* Core inflation remained stable at 0.8% y/y, similar to March.
* Housing (rental) prices moderated to 2.2% y/y from 2.7% in March.

Housing purchases prices increased by 0.1% m/m and by 0.5% y/y.

We expect inflation to reach 1.1% NTM, supported by wage pressure and likely purchase taxes (likely VAT), offset by a strong shekel.

Israeli institutions were net sellers of 3.6bn USD in Q1 2019, contributing to the shekel appreciation.
* Institutions appear less keen on increasing their FX exposure.

Chain store sales declined by 1.1% saar in Q1 2019.
* Nevertheless, we expect PC demand to remain fairly strong on wage growth, low unemployment, and high consumer confidence.

Monetary policy: We expect rate stability today due to a weak inflation print in April, shekel strength (4.2% YTD) and growing global downside risks (trade war). Supporting a rate hike will be robust GDP growth, but this will not be enough to tip the scales.

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