Surprisingly hawkish message from the BoI

ISRAEL - Report 15 Jul 2019 by Jonathan Katz


Policy rates remained on hold last week.

* The BoI Governor's press conference and the macro forecast reflected a clear tightening bias. Governor Yaron sees the likelihood of a rate hike in "one of the upcoming decisions". He also said that Israel could tighten while other banks are loosening.
* The BoI macro forecast sees rates moving higher in Q3 2019, with two more hikes in 2020. Yaron noted uncertainty of global growth.
* We still do not expect a rate hike this year, as inflation is expected to moderate in June to 1.1%-1.2% y/y (from 1.5% in May), and the shekel continues to appreciate.

Trade data in Q2 2019 points to a sharp contraction of exports.

* The trade deficit increased as imports outperformed exports.
* This will be a factor slowing GDP growth in Q2 2019.

Consumer confidence fell sharply in June, especially future expectations.

* Households are concerned about higher taxation. Weak consumer confidence supports slow PC demand and weak inflationary pressure.

The number of unsold housing units declined by 8.4% y/y in May.

* Declining inventory supports higher housing prices.

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