Low inflation print reduces the likelihood of tightening in coming months

ISRAEL - In Brief 20 Oct 2024 by Jonathan Katz

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Geopolitics: The death of Sinwar, the Hamas leader, was greeted with some cautious optimism regarding a possible ceasefire. Israel continues its ground offensive in Northern Gaza and into Southern Lebanon. Missiles and drones from Hezbollah continue to be fired into Israel at a high intensity. causing damage and casualties, as Israel continues to strike deep into Lebanon. A ceasefire appears unlikely in the short run, and an Israeli strike on Iran appears imminent. September’s CPI comes in below expectations Inflation (-0.2% m/m) moderated to 3.5% y/y from 3.6%, mostly due to a sharper-than-usual seasonal decline in flights abroad. This moderation is expected to be temporary, accelerating in October. We expect inflation to remain sticky, reaching 3.1% NTM. Monetary policy: The likelihood of a rate hike has declined, at least in the short term. Nevertheless, a rate reduction in the coming year appears unlikely. FX: The shekel appreciated by 1.4% m/m against the basket of currencies following the Sinwar assassination. Escalation in the incoming missile attacks and doubts regarding the likelihood of an imminent ceasefire could reverse this trend. Israeli institutions were net purchasers of FX in Aug, buying 6.3 bn USD increasing their exposure to 23.6% (on average) from 23.4%Foreigners increased their holdings of Israel's domestic bonds, making up 9.3% of the outstanding stock in August compared to 8.4% in July. Trade data point to expansion of both exports and imports Exports of goods increased by 9% q/q in Q3, mostly in defense, pharma, and chemicals. Both consumer imports and raw materials expanded as well. The PMI declined by 2.5 points to 51.0, still reflecting moder...