Hi tech service exports continue to support growth (and the shekel)

ISRAEL - In Brief 28 Feb 2021 by Jonathan Katz

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Highlights of the weekly macro wrap up: The BoI sounds more optimistic Rates and accommodation remained unchanged last week. Nevertheless, the rate announcement sounded more upbeat, in light of rapid vaccinations and opening up of the economy “The fast pace of the inoculation process in Israel increases the optimism regarding a rapid return of the economy to a path of growth in the coming year.” Downside risks were not ignored. The BoI appears pleased with their FX intervention policy“This trend (shekel weakness) is expected to support export performance during the exit from the crisis, and a return of inflation to the target range.” FX intervention will continue and maintain a fairly stable shekel this year. We expect a tapering of bond purchases in Q321, but steady policy rates through 2022. FX: Last week, the shekel weakened by 0.4% against the basket, following a 0.8% weakening in the previous week. Equity market volatility tends to support shekel weakening. The amount of FX purchased by the BoI in February will published on 7.3.21. Petrol prices increased by 4.7% today, our CPI forecast for March stands at 0.5% m/m. Recent indicators point to expansion Since the opening up of the closure in mid-February, credit card purchases have expanded by 4.1%, following a decline of 8% in January due to the tightening of the closure. Hi-tech service exports expanded by 25% saar in Q420. The number of employed in this sector has expanded rapidly (high income earners), supporting higher rental prices in the CPI. The bond market: Bond issuance declined to 11bn ILS in March (from 12bn). We expect this level to remain stable until mid-year when the MoF will reassess their financin...