Rates remain unchanged with a more upbeat tone

ISRAEL - In Brief 01 Jun 2021 by Jonathan Katz
Rates remained on hold yesterday and the announcement was rather upbeat, noting the rapid opening up of the economy while the escalation in violence had only a limited impact on activity. There is a significant increase in private consumption since the opening up of the economy. GDP numbers in Q121 were better than the headline -6.5% print, with much noise due to the shift in vehicle imports and fiscal spending. Much of the forward guidance remained the same but now the statement says: "The return to normal life in Israel supports rapid growth in the coming year. However, there are still challenges to economic activity in view of the health risks in Israel and abroad and the impact to the economy, particularly the labor market. " Compared to last rate decision, it was more downbeat regarding the labor market: "The crisis's adverse effects on the economy, particularly the labor market, are expected to be prolonged. " The actual FG at the end remained unchanged: "The Committee will therefore continue to conduct a very accommodative monetary policy for a prolonged time, using a range of tools as necessary, including the interest rate tool, in order to continue supporting the attainment of the policy targets and the recovery of the economy from the crisis, and to ensure the continued orderly functioning of the financial markets." Assuming the rapid recovery continues, we doubt the bond purchasing program will be extended beyond the allocated 85bn ILS. FX intervention will continue in order to slow but not prevent shekel appreciation.

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