The MPC signals that tightening could be approaching

ISRAEL - Report 04 Sep 2018 by Jonathan Katz

Recent economic indicators point to slowing PC demand domestically, supporting a low inflation environment. The last policy statement had a somewhat hawking bias. Although a rate hike cannot be ruled out this year, much will depend on the shekel and inflationary trends. It is more likely to occur in 1Q19 or 2Q19, but much depends on who will be the next Governor, which remains unknown.

Israeli institutions increased their net FX purchases by 1.1bn USD in July, increasing asset purchased abroad by 1.3bn while increasing FX hedging by only 0.2bn. This pace of FX demand is slightly higher than in previous months, and is likely to continue. The shekel appreciated by 1.1% in past two days on the back of a more hawkish tone from the BoI. This is likely to reduce inflationary pressure.

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