Rates remain stable at 0.1% , FG unchanged

ISRAEL - In Brief 24 Aug 2020 by Jonathan Katz

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Policy rates remained stable at 0.1% today with the monetary statement stressing the strong impact of the Covid crisis on the level of GDP in Q220 estimated at -11%, especially weighing on private consumption and investments. The inflationary environment remains low (-0.6% y/y) and the shekel has weakened by 0.6% (against the basket) since the last rate decision. The forward guidance statement remained unchanged: “The Committee will expand the use of the existing tools, including the interest rate tool, and will operate additional ones, to the extent that it assesses that the crisis is lengthening and that it is necessary in order to achieve the monetary policy goals and to moderate the negative economic impact created as a result of the crisis.” The BoI macro forecast was revised upwards, with GDP expected to contract by 4.5% this year and expand by 6% in 2021 (revised from -6% and 7.5% respectively).The main revisions were made in exports (-4%, previously -13%), investments (-7.5% previously -13.5%) and private consumption forecast to -7.5% (previously -8.5%). Inflation is expected to reach -1% this year (Q419 to Q420) and 0.4% in 2021.Unemployment is expected to reach 11.6% in Q420 (currently 12.3%) and 7.7% in Q421. The fiscal deficit is expected to reach 13.2% GDP this year and the debt/GDP will reach 75%.