Weekly highlights: Higher bond issuance in 2019 was offset by stronger consumer savings

ISRAEL - In Brief 12 Jan 2020 by Jonathan Katz
The fiscal deficit reached 3.7% GDP in 2019. The deficit level has been stable during the past few months. The deficit overshot target by 12bn, with spending overshooting the original budget by 2.8bn and revenues below target by 9.2bn.We expect the deficit to remain at a similar level in 2020, and possibly slightly lower, due to a more contractionary policy.Net domestic bond financing nearly doubled in 2019 compared to 2018.This was offset by stronger household savings, which provided demand for this additional issuance, at least in part.Israeli savings institutions are not keen on increasing their FX exposure. The Israel government raised 3bn USD abroad at historic low rates. The credit spread (above US treasuries) for the 10-year was below 70bp. Consumer confidence (CBS) improved in Dec 19 supportive of PC demand. In Dec, The BoI purchased 2.3bn in the FX market, following 1.2bn in Nov. Since the BoI has returned to the FX market, the shekel has stabilized. Israeli institutions sold 0.8bn of FX in November and sold 5.8bn YTD. Monetary policy: Rates remained on hold at 0.25%. The Bank of Israel does not rule out a possible rate cut to 0.1% if economic growth deteriorates significantly, but the message is clearly that FX intervention is currently the preferred monetary tool. The macro forecast of the BoI Research Dept is forecasting GDP growth of 2.9% this year, inflation of 1.0% and rates in a range of 0.1%-0.25%. We continue to expect rate stability this year. Politics: This week the final political party lists will have to be submitted. This is rather significant, because polls show that if the two small left parties do not merge, one may not make it above the minim...

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