Monetary caution due to elevated uncertainty

ISRAEL - In Brief 03 Mar 2024 by Jonathan Katz
The BoI preferred to err on the side of caution: The rate hold decision last week was not a major surprise as expectations were split. We think the major factors contributing to this decision were: the postponement of fiscal approval, shekel volatility following the Moody’s downgrade, and the postponement of the loosening cycle by the major central banks. A rate cut on April 8th appears rather likely and we currently see four more rates cuts in the coming year FX: The shekel appreciated by a sharp 2.0% (against the basket). This is likely the result of optimism regarding an imminent cease-fire, end of the month seasonal FX selling by exporters (hi-tech especially) who need shekels to pay salaries, and possibly some selling by local institutions who reached a high level of FX exposure and prefer to reduce as equity markets pushed higher. Fiscal: February’s fiscal numbers will be published on March 10th. In light of the positive economic indicators (private consumption especially) we expect another relatively positive print (although not a surplus like in January) due to strong tax revenues. In 2023, revenues/royalties from the natural gas sector reached 2.17bn ILS compared to 1.7bn in 2022. Inflation: We have revised our inflation forecast NTM down to 2.7% from 2.8% due to recent shekel appreciation. This includes the assumption and VAT will go up by 1% in January 25. Petrol prices went up by 1.8% (slightly above our forecast), and we expect higher flights abroad prices and food prices to impact the CPI in the coming months. Economic indicators mixed: Credit card (domestic) purchases increased in January by 3.5% (in real terms) and have increased by a cumulative 25.5% s...

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