The shekel appreciated sharply last week, probably due to less FX intervention by the BoI

ISRAEL - In Brief 31 Oct 2021 by Jonathan Katz

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The pace of shekel appreciation has accelerated The shekel appreciated by 1.5% last week (against the basket of currencies), and by 1.7% in October, as BOI intervention declined. Yet, Pressure for appreciation is likely to continue on strong fundamentals and FDI. Nevertheless, we maintain our inflation forecast at 1.5% NTM (low end of consensus) and expect stronger wage pressure to offset shekel appreciation. Generally, strong shekel appreciation is expected to support nominal bonds, as local investors shift out of CPI-linked bonds. Our November’s CPI forecast was reduced to -0.1% (from zero). Petrol prices will go up by 3.5% (we had expected a sharper increase). The shekel appreciation will push travel abroad costs down. The purchase tax on real-estate investors will increase to 8% from 5% contributing 0.1% to the CPI. Private consumption growth slows Credit card purchases increased by 3.4% saar in Q321 following 20.4% in Q221. Initial weekly data point to stability of a slight decline in October. Chain store sales decreased by 0.5% saar in Q3 following a 3.5% increase in Q221. Revenues from retail trade increased by in June-August 8.9% saar, slowing from 14.3% in the previous three months. We note that fiscal policy was less generous in Israel relative to the US, and therefore the Israeli household accumulated relatively modest savings. Manufacturing increased by 2.7% saar in June-August following growth of 5.1% in the previous three months. We note the robust PMI (58.1) reflects strong domestic orders and activity in September.We are forecasting GDP growth of 4.8% in 2022 Exports and investments will continue to expand rapidly, while private consumption growth slows...