Expansionary monetary policy likely to continue this year
Highlights:
Policy rates remained stable last week, for the following reasons:
- Inflation is still hovering slightly above 1%, not moving higher.
- The shekel has appreciated by 6% YTD, 1.2% since the last rate decision.
- Global downside risks have increased with the trade war issue.
- GDP growth (stripping out new vehicle purchases) was below potential, coming in slightly below 3%. New vehicle purchases surged by 611% saar in Q119 due to higher taxation in April.
The new number of job vacancies moved up in April 2% m/m, but still remains relatively low compared to one year ago.
Unemployment declined to 3.8% in April, down from 4.2% in January.
- Employment growth is up a robust 1.8% saar in Feb-April.
Credit card sales increased by 1.0% saar in February-April as modest PC continues on the back of low unemployment, and some wage growth.
The PMI declined in April by 0.3 points to 51.9, pointing to soft IP growth.
- The main driver supporting manufacturing activity is domestic orders, while export orders reflect contraction.
Both the OECD and the IMF expect growth to slow through 2020 to slightly above 3%, and strongly urge the new government to consolidate.
Monetary policy: As mentioned above, rates remained stable in the recent decision due to a strong shekel, increasing global downside risks, and below-potential GDP growth in Q119. Without a weaker shekel, higher inflation and a more stable global environment, it is difficult to envision a rate hike this year.
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