Signs of FX intervention tapering supports shekel appreciation

ISRAEL - In Brief 11 Apr 2021 by Jonathan Katz

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Economic recovery supports less monetary accommodation In March, the BoI reduced FX purchases to 2bn USD from 4.9bn in February, allowing shekel appreciation against the basket of 1%. So far in April, the shekel has appreciated by an additional 1%. Mass vaccination and opening up of the economy support less monetary intervention. The current bond purchasing program will most likely be tapered as well in the summer. We see further shekel appreciation (coming from strong growth in the hi-tech service sector, including IPOs) supporting low inflation. Economic indicators point to a rapid recovery Chain store sales increased by 4.2% m/m in February Rapid opening up of the economy has pushed credit card purchases up by 20% in March (8% sa), with further expansion so far in April. Broad unemployment declined to 12.0% in the 1st half of March from 15.4%. We expect unemployment to decline to 6%-7% by end-year. Business sector confidence improved sharply in March in most sectors. Bonds: In March, the BoI purchased 4.1bn ILS and 58.9bn in total since March 20, out of a total program of 85bn. At this pace, the program will end by September. The Governor stated that its continuation will depend on the state of the economy.The non-resident’s share in government bonds increased to 10% in February from 9.2% in January and 5.2% in April 20.The economy continues to rebound: Nearly all restrictions on activity have been lifted as 5ml Israelis are fully vaccinated with mostly only children not vaccinated. Leisure, accommodations, restaurants and events are permitted for those vaccinated. The number of new infections continue to decline as does the number of seriously ill.67k Israelis trav...