The lack of a coherent fiscal policy could support a negative rating outlook

ISRAEL - In Brief 11 Oct 2020 by Jonathan Katz

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Politics: The Director General of the MoF, Karen Turner, announced her resignation yesterday, five months after her appointment. She follows in the footsteps of the Director of the Budget and the General Accountant of the MoF. The professional team of the MoF is greatly troubled by the lack of an approved budget for 2020 and the lack of a coherent fiscal policy. The PM Netanyahu has postponed budget approval in order to maintain the option of going to early elections. If the 2020 budget is not approved by December 23rd (and the 2021 budget by March 31st 2021), the Parliament must disperse. Netanyahu has refused despite much pressure from his coalition partners (Blue and White especially). The present fragmented government and lack of coherent policy could support downgrading Israel’s rating outlook.Monetary policy: In light of expectations of a more prolonged shutdown, and only a gradual opening of the economy, we think further accommodation on Oct 22 appears increasingly likely. What are the options?Rates could be reduced to zero (from 0.1%). This already had the support of one member (out of six) in the previous decisions. The government bond purchase program could be expanded to say, 100bn ILS, from the present 50bn.The BoI could offer long-term loans to the commercial banks (LTRO) at negative interest rates under the condition that this is passed on as credit to the private sector, similar to the ECB.Strengthening the forward guidance, assuring low rates through 2022 (?), similar to the Fed’s message.We could see a combination of these tools.FX: Last week, the shekel continued to appreciate, by 1.5% against the dollar and by 0.9% against the Euro. The BoI purchased...