The BoI prefers FX intervention to lower rates

ISRAEL - Report 20 Jan 2020 by Jonathan Katz

Inflation reached 0.6% in 2019, both headline and core.
• Housing (rental) prices continue to be the main driver of inflation, up 2.1% y/y (the larger housing item, making up 25% of the basket).
• Clearly the 8.3%-shekel appreciation against the basket was the main factor supporting low inflation in 2019.
• We expect inflation to reach 1.2% in 2020, assuming the BoI continues to intervene in the FX market to slow appreciation, housing prices maintain their present pace, and fiscal consolidation (and higher taxation) contribute 0.4% to inflation.
• Inflation is expected to decline to 0.1% y/y in March (on a base effect), possibly increasing expectations for lower rates.

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