Rates remain on hold today

ISRAEL - In Brief 25 Nov 2019 by Jonathan Katz

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Policy rates remained stable but the loosening bias was maintained. The summarizing statement was clear:"it will be necessary to leave the interest rate at its current level for a prolonged period or to reduce it in order to support a process at the end of which inflation will stabilize around the midpoint of the target range, and so that the economy will continue to grow strongly. Furthermore, the Committee is taking additional steps as necessary to make monetary policy more accommodative. (we underlined this)"At the last rate decision, the statement was slightly different:"the Committee will take additional steps to make monetary policy" This could be interpreted to mean that the BoI has returned to the FX market, as we saw by the 314ml USD purchases in October. More of this is to be expected.The monetary statement noted that the inflation environment remains very low, core inflation has moderated to 0.5% y/y, the shekel has remained stable since the last rate decision (but 9% stronger YTD) and growth in Q319 remains near potential. The BoI expects the weak Q319 GDP numbers (-2.1% growth excluding inventories) to be revised. The labor market remains tight. Global activity and world trade continue to slow, but central banks have ceased to loosen further for now.We think that monetary loosening is still likely in early 2020, and the Bank of Israel is hinting that more FX intervention is to be expected. We were calling for a rate cut today, but possibly the Governor prefers to wait for the press conference at the next rate decision (13.1.20). In addition, the increasing political uncertainty possibly carried some weight in the rate hold decision.