Judicial measure passes resulting in market volatility

ISRAEL - In Brief 24 Jul 2023 by Jonathan Katz

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Yesterday, the Israeli parliament passed the bill to cancel the reasonableness standard, the first part of a planned judicial overhaul. The bill passed by a vote of 64-0 in the Knesset. All opposition lawmakers walked out as the vote was taking place. The bill takes away the Supreme Court’s power to block government decisions by declaring them unreasonable. Its passing could trigger a constitutional crisis, if the Supreme Court declares the law itself unreasonable. The passage of the bill entailed mass demonstrations across the country. This measure could trigger a stern warning from one or more of the rating agencies. Markets are likely to continue to remain volatile in the short run. The last rate hold decision was a 4-1 vote, with one member in favor or raising rates by 0.25% to 0.5%. Rates remained on hold as the MPC views present rates as restrictive enough, and see signs of slowing inflation and growth. Nevertheless, “The Committee noted that the depreciation of the shekel continues to be a significant factor delaying the convergence of the inflation rate back to the target… if the trend of depreciation continues, it is liable to weigh on the convergence of inflation to its target”. The MPC will place much weight on the shekel in their future decisions. The PMI in June declined by 2 points to 48.2 points reflecting contraction, as most components declined as well. Domestic orders remains net positive compared to continued contraction in export orders.