The Israel private sector purchases FX, despite CA surplus

ISRAEL - In Brief 13 Sep 2021 by Jonathan Katz
The private sector purchases FXIn Q2, the Israeli private sector were net buyers of 3.5bn USD compared to net sellers of 4.8bn in Q1. Despite the fact that Israel enjoys a large CA surplus, not all revenues from exports reach the FX spot market (but rather are kept as FX for future investments), while importers (especially new vehicles) must purchase FX in order to import. In addition, foreigners were net sellers of 5.8bn USD in Q2, up from 2.1bn in Q1. This represents both financial flows as well as FDI. Israeli institutions sold 11.1bn and the BoI purchased 11.3bn in Q2.The main factors supporting shekel appreciation are investments into Israel’s hi-tech sector and FX selling by institutions, but the latter is dependent on the upward trend in equity markets. The CA surplus is a strong "psychological" factor, but in reality, its impact on FX is minimal.Outgoing tourism dropsThe number of Israelis traveling abroad declined by 39% m/m in August to 305k due to the increasing restrictions on traveling (self-quarantine upon return). In August 19, the number of Israelis who traveled abroad reached 1.2ml. The fact that Israelis are staying home this summer supports domestic consumption, as well as lower prices on flights abroad (we assume -3% in our CPI forecast of 0.24% m/m in August). The number of incoming tourists increased slightly to 53k in August, compared to 305k two years ago.

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