A more prolonged closure supports further accommodation

ISRAEL - In Brief 04 Oct 2020 by Jonathan Katz

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Highlights of the weekly Israeli macro wrap up:Recent economic indicators reflect growth deterioration:Credit card purchases declined sharply since mid-September (through end-month), especially for tourism, restaurants, leisure, and clothing/furniture/electronics, due to the renewed closure.The Google Mobility Index to/from work declined by 35% in the past week and is down 50% since the Covid crisis.Other data reflect mostly pre-second shutdown:Broad unemployment declined to 11.5% in the first half of Sept. from 11.8% in the second half of August. Unemployment claims are up 180k since the lockdown, pushing current unemployment to 16%.Chain store sales were up 6.7% y/y in August, as Israeli remained home this year (and did not travel abroad).The Composite Index (a lagging indicator) declined by 0.06% in September.Monetary policy: In light of expectations of a more prolonged shutdown, and only a gradual opening of the economy, we think further accommodation on 22.10 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. This will have little impact on the economy or on effective borrowing costs, but will be a more of “statement”.The government bond purchase program could be expanded to say, 100bn ILS. Through August, 30bn have been purchased out of the present framework of 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 F...