A dovish "hold" expected today (Monday)

ISRAEL - In Brief 05 Jan 2025 by Jonathan Katz

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Geopolitics: The Lebanese border remains calm while Israel has neutralized military capabilities in Syria (recently a precise missile production factory). Periodic ballistic missiles fired from Yemen have been shot down before entering Israel. The Israeli negotiating team returned to Qatar in order to negotiate a cease-fire in Gaza. Rate decision today: emphasis on balanced inflation risks Previous rate decisions have stressed a long list of inflation risks, including supply constraint issues, higher housing rental prices, fiscal policy, and a weaker shekel. We think the current assessment has shifted to a more balanced inflationary picture between less supply constraints (including a stronger shekel) and possibly strong consumer demand as the war winds down The BoI macro forecast will most likely reflect 1-2 rate cuts by end-2025 (from rate hold through Q325 in October forecast). The BoI could present a range of 4.0%-4.25% and not a specific rate. Economic indicators point to growth in Q424 Credit card purchases were up 2% m/m in November, especially consumption of industrial goods (5%). This uptick in consumption is most likely due to early consumption before higher VAT kicks in and higher taxes on electric vehicles. Chain store sales actually declined by -0.1% m/m in November following an increase of 1.6% in October (SA). The MoF is reporting robust tax revenues in December. This is an additional indicator of strong domestic demand. High-tech service exports remained stable in October (compared to Q324). Capital raising abroad is up 38% in 2024 to 9.6bn USD. The average wage in November moderated sharply to 1.2% y/y (nominal), a positive trend supportive of softer i...