A rate hold decision is expected hinting at likely loosening when geopolitical risks decline

ISRAEL - In Brief 07 Jul 2024 by Jonathan Katz
Geopolitics: There is renewed optimism regarding a possible cease-fire and a hostage deal with Hamas not demanding a complete end to hostilities and total Israel withdrawal as pre-conditions for a deal. It is still difficult to say whether a deal will actually occur. Israel continues to operate in Gaza targeting specific areas. The missile barrage from Lebanon has decreased in recent days. Rate hold decision expected on Monday The overriding monetary consideration remains elevated geopolitical risks and the impact on the shekel. Although macro factors do support loosening: low inflation and growth below potential (mostly due to supply issues). • Markets will focus more on the BoI macro forecast and press conference. We expect the GDP forecast for2024 to be revised downwards. The rate forecast is likely to remain unchanged at 3.75% in Q225. Business sentiment points to further recovery The Business Tendency Survey in June shows current activity improving in most sectors, but future expectations remain weak. Most sectors are reporting higher prices and lack of workers as a factor limiting activity. Inflation expectations have pushed higher. The hi-tech service sector expects growth in exports and employment next month, but at a slower pace than in May. Hi-tech service exports increased by 2.3% m/m in April and are up 14% saar in February-April. This is a key economy sector which also has succeeded in raising 2.9bn USD abroad in Q2, following 1.6bn in Q1. Steady expansion in hi-tech activity is positive for both the economy and the shekel. The Poalim Consumer Confidence Index improved slightly in June but remains historically low due to the continuation of hostilities and...

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