Growth remains steady, supportive of rate stability, but FX intervention to continue

ISRAEL - In Brief 26 Jan 2020 by Jonathan Katz
Highlights: The Composite Index of the BoI points to steady growth.This index increased by 0.26% m/m in December, similar to months previous.In Q419 this index increased by 3.2%, in line with long-term growth potential.The MPC sees this as a factor supportive of rate stability, and therefore prefers to use FX intervention.Exports of services (mostly hi-tech) increased by 13.3% saar in September-November, a strong print as this sector continues to be an important driver.Other economic indicators point to some deceleration in PC and IP.Growth of total revenues of the economy slowed to 0.9% saar in Sept-Nov (all trend data, saar), following growth of 3.9% in June-August.Revenues from retail trade slowed to 2.1% from 3.6% in previous 3 months.Manufacturing growth slowed to 3.8% from 7.9%.Growth in hi tech manufacturing is up 10.5%, other sectors down 0.4%.Monetary policy: The last rate decision was 4 to 1 (one in favor of a rate cut). Governor Yaron is clearly signaling that a rate cut is off the table, as long as growth is decent, and other central banks (Fed especially) are on hold. FX intervention remains the main policy tool.Politics: Both Netanyahu and Gantz are going to meet Trump regarding he's peace plan. We doubt any progress will be made, certainly not before the elections, and with the Palestinians opposing Israel maintaining control of Jerusalem. Important data this week: Thursday: Wednesday: Chain store sales (December), Thursday: Credit card purchases and labour data (unemployment, etc), for December, as well as the Consumer Confidence Index.

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