Ahead of tonight’s interest rate decision – analysts expect expansion of...

The Bank of Israel is expected to announce tonight at 16:00 the interest rate and monetary policy decision, with most economists estimating that there will be an expansion of support measures, such as lowering interest rates and / or expanding the purchase plan. At the moment, the Bank of Israel’s interest rate is at a zero rate of about 0.1%, but analysts estimate that the bank may lower the interest rate (although this is a mostly symbolic move) – will we soon start paying interest on the bank’s savings? This is what analysts think.

Rafi Gozlan, Chief Economist, IBI Investment House: “In the next interest rate decision The Bank of Israel will not be able to ignore the deterioration in the macro picture recorded in recent months. The last decision was at the end of August and at the same time there was a worrying increase in morbidity but the economy was characterized by fewer restrictions. In the September decision, the Bank of Israel presented an optimistic scenario (epidemic control) and a pessimistic scenario (partial control of the epidemic – with reductions and restrictions every few months), with recent developments placing the local economy on the path of the pessimistic scenario.

“Remember, in this scenario, growth this year is expected to be around 7% – and more importantly the subsequent recovery is expected to be quite moderate (about 3%) and will be accompanied by high unemployment rates of 13% -12%. In terms of interest rates, this scenario assumed a range of 0.1% -0.0 In other words, the actual inflation environment remained negative when basic inflation was around 0.5% since May this year and inflation expectations for the coming years are below the lower limit of the target.

“In addition, it is likely that the Bank of Israel will consider that there will be no real improvement in crisis management, which means potential for further waves of illness. This coincides with the continued postponement of the 2021 budget transfer, a move that raises the chances of a failed election.” Although the solution to the crisis is not on the Bank of Israel’s field, it can not remain indifferent and is likely to play its part in the next decision. The Bank of Israel has succeeded in establishing an environment of relatively favorable financial conditions, and is likely to continue Change with the support of one member to reduce the interest rate to zero. It is likely that the current decision will provide broader support, and we estimate that there is a high probability of reducing the interest rate to zero.

“In addition, By the end of September, the bank had purchased NIS 34 billion in bonds from a NIS 50 billion plan, and it is reasonable to expect an expansion of this plan. And it is not inconceivable that it will not be restricted, in the way the Fed practices, i.e. beyond purchases as needed. In this respect, over the past few months there have been a number of episodes in which there has been concern about lowering Israel’s credit rating, which has manifested itself in pressure to increase bond market yields. The Bank has responded by increasing bond market involvement. Occasionally tactical opportunities for MMM extension.

“In the foreign exchange market, the Bank of Israel missed an opportunity to signal to the market about new rules of the game”
“Contrary to the success in the bond market, in the foreign exchange market the story is completely different. During September, the bank purchased a relatively small amount ($ 280 million), due to a relatively rapid depreciation of the shekel exchange rate. In our opinion, the bank missed an opportunity to signal a At this time, the weakening of the shekel is quite effective in supporting the state of the economy, as it will reduce the deterioration experienced by domestic exports, against the background of declining demand, and hence reduce the potential for harm to the labor market. “Over the past decade, the Bank has shown relatively high determination around the current levels of the shekel-dollar, and it is likely that at the current time, which is characterized by the deteriorating economic situation, this high involvement is expected to be maintained,” Gozlan concluded.

Bank Hapoalim economists: “The markets are waiting for some relief, but There is not much ammunition left for the Bank of Israel. The makam market embodies a high probability of lowering interest rates to zero. At least one member of the Monetary Council supports a reduction in interest rates, so this is a reasonable option. We still estimate that the Bank of Israel will prefer, like the US Fed, to focus on future monetary policy direction, which has a greater impact on the yield curve. It is possible that the Bank of Israel, for example, will already choose to increase the quota of government bonds it purchasesIn order to give the bond market more certainty, in view of the large capital raisings of the Treasury. “By the end of September, the Bank of Israel has purchased government bonds in the amount of NIS 33.6 billion, and by the end of the year, the 50 billion quota is expected to be exhausted.”

Dr. Gil Michael Befman, Chief Economist of Bank Leumi, and Interest Rate Strategist Dudi Reznik: The September index, which fell 0.1% (slightly lower than previously forecast), confirms the assessment that the inflation environment in Israel continues to be negative. In the coming months, and especially into 2021, the inflation environment is expected to rise moderately but does not appear to reach the lower limit of stability. Prices. Against the background of the low inflation environment and in addition to the slowdown in the economy due to the limitations and closure of the last month, it is not inconceivable that the Bank of Israel will announce the use of other monetary tools this week. An additional up to 10 bp to zero level. The possibility of expanding the Bank of Israel’s activity is also supported by the continued strengthening of the shekel and the fact that the shekel has returned to trading at peak levels against the basket of currencies. ”

According to Ofer Klein, Head of the Economics and Research Division at Harel Insurance and Finance There is a “good chance we will see an expansion in detail.” “Due to the strength of the shekel, the low expectations for inflation and of course the damage to the economy due to the restrictions,” The Bank of Israel, signaling that it is willing to increase the government bond purchase program, will continue to encourage banks to increase credit and ease conditions, and may even make a symbolic reduction in interest rates“.

Alex Zabrzynski, Chief Economist of Meitav Dash: “We expect the October index, despite a relatively high seasonal increase, to rise by only 0.1% due to the effect of the closure. The November and December indices are expected to fall by 0.1%. Inflation in the next 12 months is expected to be about 0.5%. We estimate that the Bank of Israel may lower interest rates to 0% in its decision this week“.

The governor, Yaron, said last week in a television interview with Bloomberg that B.I. will continue to pursue a very broad monetary policy, as long as necessary – “will continue to do whatever accommodative measures we need to do as we are going forward.” The chief strategist of Mizrahi Tefahot Bank, Modi Shafrir, The Governor’s statement supports the assessment that the Bank of Israel will adopt a monetary expansion At the next meeting on October 22, it will increase (or even double) the plan to purchase government bonds and may even lower the interest rate to zero and strengthen the Forward guidance policy.