The Deputy Governor sounds more hawkish than the Governor

ISRAEL - In Brief 13 Oct 2024 by Jonathan Katz
Geopolitics: Israel continues to push on with its ground operation into Lebanon, while missiles into Israel’s North (including the Haifa area) continue at a high intensity. Israel continues to attack parts or Northern Gaza as well. The Israeli retaliation against Iran appears imminent, with the main assessment currently is that Iranian missile launchers and military bases will be targeted and not oil or nuclear facilities. Fiscal deficit reaches 8.5% GDP Expenditures are up 31.3% y/y YTD while revenues are up 5.4%. Excluding expenditures related to the war, spending is up 8.3%, above the target of 4.9% for all of 2024, which appears rather expansionary. We expect a fiscal deficit of 7.2% this year (similar to BoI forecast). Policy rate decision: Rates remained on hold last week, as expected. The monetary statement had a tightening bias with many inflationary risks on the horizon, including fiscal policy, supply constraints, a tight labor market higher rental prices and energy costs. Governor Yaron tried to play down the possibility of a rate hike in the short run with the BoI aware that inflation y/y will accelerate in Q125, while Deputy Governor Abir sounded more hawkish in a recent Reuters interview. BoI macro forecast: The BoI Research Department revised their growth downwards to 1.0% in 2024 (from 1.5%) and 3.8% in 2025 (from 4.2%). The fiscal deficit is expected to reach 7.2% this year and 4.9% next year, with debt/GDP reaching 69%. Inflation is expected to reach 3.2% in the NTM and 2.8% in 2025. Rates are expected to remain unchanged through Q325. This forecast assumes a higher level of intensity of warfare through Q125 (due to Lebanon) and only a gradual recover...

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