Rate stability likely today, but some form of further accommodation possible

ISRAEL - In Brief 23 Aug 2020 by Jonathan Katz

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Monetary policy: We do not expect a policy rate change today, but we cannot rule out some additional accommodation. This could take the form of the ECB style LTRO at a negative interest rate, under the condition that these loans are passed on to the private sector. The Bank of Israel is under pressure to do more, and has expressed disappointment regarding fiscal support for businesses. In addition, the Bank of Israel will give more detail regarding their revised GDP forecast of -4.5% in 2020 (revised from -6% in June).This is mostly due to the lower-than-expected contraction in the Q220. Recent economic indicators remain mixed: The good news: credit card purchases are up sharply in August, basically returning to pre-Covid levels, but this is due in part to the fact that Israelis are remaining in Israel this summer and not traveling abroad. The PMI increased 4.8 points in July to 49.8, production is expanding but the orders and employment components remain weak. Unemployment (broad definition) has stabilized at around 12%. The CBS confidence indicator improved slightly in the first two weeks of August, but the level of optimism remains rather low. The BoI composite index increased by 0.15% in July; the BoI sees stability in economic activity following the closure. Politics: Uncertainty regarding whether Israel will go to early elections remains, with the official deadline for 2020 budget approval expiring today (otherwise the Parliament must disperse). This deadline will most likely be postponed late tonight, but this is far from certain as there is much bad blood developing between the Likud and Blue and White. The bond market: The Israeli bond market remained fairly s...