The BoI sounds rather optimistic; no further accommodation likely

ISRAEL - In Brief 01 Nov 2020 by Jonathan Katz

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Highlights: Economic indicators point to a gradual recovery The weekly credit card purchases have increased by 20% in the past two weeks (through 28.10) as the economy has opened up. The Google Mobility Index to the workplace has rebounded to close to pre-second-closure levels. Hi-tech service exports increased by 10% annual in July-August compared to Q220. This remains a strong economic driver. Total revenues of the economy (VAT derived) increased by 1.8% y/y in September, while retail trade is up 11.4%. This is due to summer rebound with Israelis not traveling abroad and therefore spending locally. On more negative note, the BoI Company Survey for Q320 points towards contraction, although less severe than in the previous survey. Our impression of the MPC: At several occasions, including the press conference following last week’s rate decision, Governor Yaron appears somewhat optimistic, as did the Deputy Abir when he gave a zoom presentation last week. They stress the rapid recovery in the summer months, and sound very skeptical regarding the possibility of lower rates. Bond market: With this rather conservative monetary bias, yields have drifted higher, impacted by higher yields in the US as well. Government bond issuance will reach 15.5bn in November, following 10.5bn in October, but we note that this is due to five weeks of issuance this month (The MoF noted that the weekly bond issuance remains stable). Both the BoI and MoF expect fiscal deficit of 12.9% GDP this year, but they note that this is overly pessimistic, and assumes total execution of the Covid-crisis outlays. FX: In Q320, both non-residents and local institutions sold FX to the BoI. Monetary aggregate...