Strong fiscal numbers expected to support bond issuance reduction

ISRAEL - In Brief 13 Feb 2022 by Jonathan Katz

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January witnessed a huge fiscal surplus The fiscal surplus reached 18.5bn ILS, as tax revenues increased sharply on huge tax revenues from corporates. The LTM fiscal deficit declined to 3.3% GDP from 4.5% last month. We expect the MoF to reduce weekly bond issuance to 0.8-0.9bn from 1.1-1.2bn at present. The MoF announced a fiscal package of 4.4bn ILS including import tariff reductions as well as lower personal income taxation. We are likely to see another fiscal package by mid-year aimed at reducing the cost of living and improving competition.Consumer confidence declined sharply in January, probably due to the Omicron wave, declining equity markets and inflation fears. The CBS consumer confidence index declined to -18 from -12.As Omicron restrictions and fears have declined, real time indicators point to modest growth in credit card purchases in the first week of February and improved mobility to the workplace.FX: The shekel weakened against the basket by 0.9% last week, on the back of further equity market volatility. In January, the BoI purchased 356ml USD, while the shekel weakened by 2% against the basket. Deputy Gov Abir said the BoI will be in no rush to hike (but global inflation spill over will be taken into account).Monetary policy: We maintain our call for a rate hike on April 11th, assuming the Omicron wave continues to peter out (as it appears to be doing). Both the high inflation environment (3.2% y/y expected in February, the last CPI print available on April 11th) and tightening labour market supports this. The latest business survey is also fairly robust. We cannot rule out a postponement to late May. We compare this rate hike decision to that of Nove...