Rate cut today (Monday) appears likely

ISRAEL - In Brief 25 Feb 2024 by Jonathan Katz

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A rate cut today is our base forecast: After some hesitation last week, we expect a cut today. Consensus is divided according to Bloomberg (11 expect a rate cut, 6 expect hold). A rate cut is supported by low and decelerating inflation, a strong shekel and only a partial recovery in economic growth. If we do see a rate hold decision today, the BoI will stress the postponement of fiscal budget approval, higher inflation expectations and shekel volatility. The Fed appears to be in no rush to loosen as well. FX: The shekel weakened by 0.8% (against the basket) partially due to expectations of a rate cut today, as well as equity market volatility globally. The shekel has appreciated by 1.4% since the last rate decision. Economic indicators were generally positive last week: “Broad” unemployment declined by 5.6% in January from 7.2%, while narrow unemployment remained stable at 3.2%. The PMI Manufacturing in January increased by 1.6 points in January to 50.8 on strong domestic orders offsetting weak export orders. Actual manufacturing in Q423 contracted by 7% saar while sales of high-tech industries was down only 0.7% in Q423 following growth of 15.5% in Q3. Real time credit card purchases increased in February after a weak month in January (partially weather related), stabilizing at 2% above pre-war levels. The BoI estimates a real increase of 2% in January of purchases. Q423 GDP contracted by 19.4% saar due to the immense impact of the war on private consumption (-26.9%) and investments (-67.8%). We expect a strong rebound in the 1st quarter of 2024. The BoI Composite Index increased by 0.29% m/m in January, while the previous prints were revised downwards. The BoI notes ...