The MPC will be considering further accommodation

ISRAEL - In Brief 28 Sep 2020 by Jonathan Katz

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Highlights of the weekly Israeli macro wrap up:Monetary policy: The next rate decision is still far away (22.10) but the MPC will be meeting before then to discuss monetary policy. We doubt the MPC will be satisfied with a “hold” decision with no shift in policy. Both weaker growth (due to the renewed shutdown) and more pronounced deflation support a more accommodative stance. What are the options?Rates could be reduced to zero (from 0.1%). This already had the support of one member (out of six) in the previous decisions. This will have little impact on the economy or on effective borrowing costs, but will be a more of “statement”.The government bond purchase program could be expanded to say, 100bn ILS. Through August, 30bn have been purchased out of the present framework of 50bn.The BoI could offer long-term loans to the commercial banks (LTRO) at negative interest rates under the condition that this is passed on as credit to the private sector, similar to the ECB.Strengthening the forward guidance, assuring low rates through 2022 (?), similar to the Fed’s message.We could see a combination of these alternative.Economic indicators expected to point to growth deterioration:Unemployment (broad measurement) declined to 11.6% in August from 12.3% in July. The renewed closure is expected to push unemployment back up to 16% (at least) in the short run. The Employment agency is expecting unemployment to increase by 300k, or 7% of the labor force.Credit card purchases declined in the first half of September, mostly to the seasonal return to school, following a sharp increase in August.Hi-tech service exports declined by 2% m/m in July but are up 12% y/y.The major forecasters ...