The shekel continues to appreciate sharply

ISRAEL - In Brief 07 Nov 2021 by Jonathan Katz

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Strong employment growth in October Following the Jewish holiday season, the number of employed increased sharply reaching the pre-Covid level. The employment/population ratio reached 59.8% compared to 60.5% pre-Covid. Wage growth has averaged around 4% annual, with stronger growth concentrated in the hi-tech sectors. The public sector wage freeze through 2022 will moderate wage growth. The CBS business survey points to strong growth in all sectors The leading indicator components (orders and expectations) point to acceleration in most sectors. Strong growth and recovery generally support less FX intervention. Inflation expectations moved slightly higher to 1.56% NTM in industry and 1.39% in retail trade. FX: The shekel continued to appreciate last week by 1.3% (against the basket of currencies) and by 3.1% in the past two weeks. Hi-tech service exports are up 22% y/y so far this year, offsetting the increase in merchandise imports and supporting a strong shekel. The BoI Governor has conveyed to markets that FX intervention will decline as the economy recovers. The BoI purchased 1.7bn USD in October, nearly completing the 30bn program. Further FX intervention is still possible depending on FX volatility. The FX pass-through on inflation is estimated at 0.2, but pent-up price pressure in food, durables and home appliances could moderate this impact. Bond purchases: 3.2bn ILS government bonds were purchased in October, 4.9bn remaining in the 85bn program which will not be extended. The fiscal budget for 2021-2022 has been approved in the Knesset. Although the official fiscal deficit target stands at 3.9% GDP for 2022, recent strong tax revenue growth supports a lower def...