Past week review and week ahead: macroeconomic and geopolitical developments - Weekly report, April 6, 2026
Last week was short due to the Passover holiday, with the main focus on the Bank of Israel's decision to keep rates unchanged at 4.0%. The rate announcement maintains a somewhat hawkish tone due to war and inflation risks. BoI growth forecasts for 2026 were revised down to around 3.8%, although a strong rebound to 5.5% was still expected in 2027. Ministry of Finance forecasts were also revised down to around 3.8%, with growth falling to as low as 3.3% in adverse scenarios. The 2026 budget was passed last Monday with an optimistic deficit target of 5.1%; we estimate a deficit closer to 6% in 2026.
Looking ahead, this week is expected to be relatively quiet due to the holiday, with no major data releases. Markets will focus primarily on geopolitical developments, particularly the expiration of the U.S. ultimatum to Iran this evening (April 6), and the potential for either escalation or a ceasefire.
At present, Donald Trump is signaling that in the absence of an agreement and the reopening of the Strait of Hormuz, the U.S. may strike energy infrastructure in Iran. Iran has threatened a retaliatory response targeting energy and electricity facilities across the Gulf states and Israel. Meanwhile, oil prices are trading at around $109 per barrel, with upside risks remaining significant. Escalation could also involve the deployment of ground forces on islands in the Persian Gulf, or even along Iran’s coastline, as well as attempts to seize enriched uranium stockpiles.
Meanwhile, the Tel Aviv equity markets reacted positively on Friday, with the TA-35 rising 2.2% and the TA-90 gaining 2.53%. This concluded a strong performance during the shortened holiday week, with the TA-90 up 2.1% and the TA-125 increasing by 2.2%, broadly in line with global markets, where the S&P 500 gained 3.4%. Since the start of the war, Israeli equities have shown relative resilience compared to the U.S., with the TA-90 down by 1.7% and the TA-125 up by 1.3%, while the S&P 500 declined by 4.3%.
On the monetary front, rising oil prices are expected to push April inflation higher (to around 1.1%-1.2%), after gasoline prices for April increased by around 15%. This could reinforce a “higher-for-longer” rate environment; accordingly, we have raised our policy rate forecast to 3.75% by end-2026, with a growing probability of no rate cuts through year-end.
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